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Author's Name: Kevin Davis
Date: Tue 12 Feb 2019

Kevin Davis

Professor Kevin Davis

Kevin Davis is Professor of Finance at the University of Melbourne. His primary research interests are financial regulation, financial institutions and markets, financial innovation and corporate finance. He is co-author/editor of 16 books in the areas of finance, banking, monetary economics and macroeconomics and has published numerous journal articles and chapters in books. He is the Deputy Chair of SIRCA, a member of the Australian Competition Tribunal, and has undertaken an extensive range of consulting assignments for financial institutions, business and government. Professor Davis is a Senior Fellow of Finsia, a Fellow of FTA and holds Bachelor of Economics (Hons I) from Flinders University of South Australia and a Master of Economics from the Australian National University. He was appointed by the Federal Treasurer in December 2013 as a panel  member of the Financial System Inquiry chaired by Mr David Murray.

Subject Area Expertise

Financial Regulation; Financial Markets and Institutions.

Website

www.kevindavis.com.au 


Responses (27)


Wage freeze for economic recovery

Poll 39

"A freeze in the minimum wage will support Australia's economic recovery"

Photo credit: Wes Mountain/The ConversationCC BY-ND 

 

Strongly disagree

8

I am not aware of any compelling evidence to support this proposition. It ignores the effect of higher wages on consumption and aggregate demand. While higher labour costs might contribute to higher prices - that should be a minor concern at a time when inflation is below the target range. And this ignores any distributional considerations!


Social Distancing Measures, May 2020

Poll 38

"The benefits to Australian society of maintaining social distancing measures sufficient to keep R<1 for COVID-19 are likely to exceed the costs"

 

Uncertain

5

It depends very much on long such measures are needed and the impact they have on the viability of different types of businesses.


Wage freeze for economic recovery

Poll 39

"A freeze in the minimum wage will support Australia's economic recovery"

Photo credit: Wes Mountain/The ConversationCC BY-ND 

 

Strongly disagree

8

I am not aware of any compelling evidence to support this proposition. It ignores the effect of higher wages on consumption and aggregate demand. While higher labour costs might contribute to higher prices - that should be a minor concern at a time when inflation is below the target range. And this ignores any distributional considerations!


Social Distancing Measures, May 2020

Poll 38

"The benefits to Australian society of maintaining social distancing measures sufficient to keep R<1 for COVID-19 are likely to exceed the costs"

 

Uncertain

5

It depends very much on long such measures are needed and the impact they have on the viability of different types of businesses.


Electric vehicles and road-use pricing - June 2018

Poll 30

"Pricing of road-use for electric vehicles should be the same as fossil fuel-powered vehicles."

 

Disagree

6

Money is fungible, so even though the fuel levy is "linked" to road funding for public perception reasons I don't see it really in that light, rather than as just another source of government tax revenue. To the extent that there are social benefits from electric vehicles, then a lower overall tax rate for them is probably warranted - but how that can be efficiently and effectively designed is another matter.


Will building more homes make housing cheaper? - May 2018

Poll 29

"A sustained increase in the number of new homes constructed each year, all else equal, will make housing cheaper than otherwise."

 

Agree

9

Given the cet par assumption and "housing cheaper than otherwise" assertion its hard to disagree - but that doesn't rule out that other factors may have been responsible for past increase in housing prices.


Australian Federal Budget 2018 - Reduce government debt or provide tax cuts? - April 2018

Poll 28

Proposition 1: "Slowing the growth in the debt to GDP ratio should be a priority for Australian governments."

Proposition 2: "Slowing the growth in the debt to GDP ratio is a higher priority than income or corporate tax cuts."

 

1 - Agree

2 - Agree

1 - Not always a priority it depends on optimal value and current circumstances.

2 -


US corporate tax cuts - March 2018

Poll 27

"The recent US corporate tax cuts will have no impact on investments in and capital flows into Australia."

 

Uncertain (neither agree nor disagree)

5

With a floating exchange rate, the aggregate capital inflow will only change if the current account balance changes. To the extent that the supply curve of foreign capital shifts inward due to foreign tax cuts then some AUD depreciation could occur improving the current account balance and thus implying less foreign capital inflow in equilibrium.


Gig economy and worker welfare - February 2018

Poll 26

"The wages and conditions of Australian workers providing services in sectors affected by the rapid growth of digital on-demand subcontracting platforms will, on average, be expected to fall without further government intervention."

 

Agree

7

I'm assuming the question refers to relative wages (versus rest of economy), and answer is premised on elastic supply of labour to that sector reflecting relatively low specialised skill requirements. But response could be expected to vary depending on whether the new business models create new demand for the products/services.


Same sex marriage - November 2017

Poll 24

"Assuming that the law will be changed to allow same-sex couples to marry in Australia, this will generate net economic benefits for the nation as a whole over the next 10 years."

 

Strongly disagree

7

There may be more expenditure on weddings etc., but no obvious reason that this would not be at the expense of other consumption expenditures.


Public borrowing for infrastructure investment - September 2017

Poll 22

"As interest rates are at low levels by historical standards, federal and state governments, despite their public debt levels, should be borrowing more than they currently are to invest in infrastructure"

 

Strongly agree

8

Provided that public sector decision making is sufficiently robust to ensure that NPV of projects adopted is positive, then strongly agree. Not confident about that caveat being met!


Does privatisation of human services hurt outcomes? - July 2017

Poll 20

"For-profit provision of human services like health and education leads to poor client outcomes and high costs to government."

 

Agree

8

The problem of asymmetric information is prevalent in these areas such that users have limited ability to assess quality and value and can be taken advantage of by unscrupulous operators. Short term self-interest of providers, unless reputational concerns are paramount, and unless accompanied by a commitment to fairness, can lead to problems when for-profit operators actions are not regulated appropriately or subject to consumer-oriented competitors which may provide a benchmark for assessing quality and value. Not-for-profits (mutuals, "charitable" entities or governments) can play such a role and have been important in both health and eduction.


Australian Federal Budget 2017 - Outsourcing Economic Forecasting - May 2017

Poll 18

"Given the Commonwealth Treasury?s ongoing difficulty in making accurate forecasts of some of the key economic variables underpinning the Budget ? in particular nominal GDP growth ? the Government should ?outsource? the economic forecasts used in framing the Budget to an independent agency (such as the Parliamentary Budget Office), as now happens in the United Kingdom."

 

Disagree

6

I'm not familiar with the evidence on whether Treasury forecasts are better or worse than others, and if they are worse the prior question to ask is why - is it inherent biases induced by need to present particular acceptable budget forecasts, lack of adequate resourcing, or use of incorrect models etc.


Energy shortages - reserving Australian gas - April 2017

Poll 17

"In response to energy shortages around Australia, government policies requiring gas producers to reserve some production for domestic consumption are a good way to ensure that Australian consumers have access to sufficient gas supplies while still allowing for gas exports."

 

Disagree

6


CGT deductions - March 2017

Poll 16

"Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices."

 

Strongly agree

10

The issue should not be restricted to houses - in fact to do so would probably introduce other types of distortions. Rather, a return to full taxation of real capital gains would make sense. The practical problem is whether/how past unrealised capital gains could/should be grandfathered.


2016 US Election - November 2016

Poll 13

"Hillary Clinton is likely to be the superior US presidential candidate for the Australian economy and for Australia."

 

Strongly agree

10


Economics teaching - micro before macro - February 2017

Poll 15

"It is more effective to teach an introductory course in micro-economics first before an introductory course in macro-economics."

 

No opinion

10


Part 1: 'Behavioural economics provides new and useful insights into individual behaviour.' Part 2: 'It is unethical for governments to use behavioural economics to

The total benefit of current levels* of migration to Australia will outweigh the total costs to Australia's economy.

 

Strongly agree

10


Immigration - November 2016

Poll 12

'The total benefit of current levels* of migration to Australia will outweigh the total costs to Australia's economy'.

 

Uncertain (neither agree nor disagree)

5

Historically, this issue was often discussed in terms of effects on aggregate demand and supply, employment/unemployment consequences and skill needs. I think currently the socio-demographic issues probably make this question of second order of importance currently, and it depends partly on the composition of the migrant intake. If the total benefits in the question are defined to include those accruing to migrants, I would anticipate that there are very substantive benefits if the composition was skewed more towards refugees. That would, I think, be much preferable to those getting residency status via the (in my view) silly, unjustified Significant Investor Visa (or other such) programs. Important influences on economic costs/benefits include migrant destinations and capacity of capital cities to absorb and provide infrastructure, and also effects of migrant age distribution on affecting rate of ageing of overall population.


Behavioural economics - September 2016

Poll 11

Part 1: 'Behavioural economics provides new and useful insights into individual behaviour.'

Part 2: 'It is unethical for governments to use behavioural economics to "nudge" citizens.'

 

PART 1 - Strongly disagree

10

PART 2 - Strongly disagree

10


RBA economic growth targets - August 2016

Poll 10

"The Reserve Bank of Australia should be tasked with targeting nominal economic growth rather than inflation."

 

Strongly disagree

8

Nominal income growth is the product of inflation rate and real output growth. Higher values of one are bad and of the other are good. So why combine in one "target' rate range - where the policy response should depend on the mix.


The Brexit - impact on UK citizens - July 2016

Poll 9

"Assuming it is implemented, Brexit will deliver net economic benefits, on average, to UK citizens within its first 5 years."

 

Strongly disagree

9


Spend on education or business tax cut - June 2016

Poll 8

"Australia will receive a bigger economic growth dividend in the long-run by spending on education than offering an equivalent amount of money on a tax cut to business."

 

Strongly agree

8

Apart from the Keynesian perspective on relative size of multipliers (which is short term anyway), the need for improved human capital is a major investment requirement which education spending helps, as also it helps potential labour force flexibility to cope with changing economy. Also benefits of corporate tax cuts under an imputation tax system go primarily to foreign owned firms.


China services boom for Australia? - April 2016

Poll 6

"As the Chinese economy makes its transition from investment-led to consumption led growth, the Australian service sector which currently accounts for around 20% of total exports, will produce a second 'Chinese economic windfall' for Australians."

 

Uncertain (neither agree nor disagree)

6


Efficiency of tax Government investments in major sporting events - February/March 2016

Poll 5

"Government investments in major sporting events usually generate net benefits for the city or region where the investment is made."

 

Uncertain (neither agree nor disagree)

9

It depends - a single event creates capacity constraint issues and while some temporary employment, owners of accommodation etc who get higher rents are not necessarily locals. The Centre for South Australian Economic Studies did a multifaceted review of the Grand Prix when it was in Adelaide and could not find evidence of net benefits (most significant effect was the "hoon effect" - more speeding violations. There is rarely adequate transparent cost-benefit analysis showing real government subsidy and non-market costs to locals. However, a portfolio of continuing major events may provide benefit via generating consistent increased tourist flow etc generating sustained employment and increased capacity opportunities.


Efficiency of tax incentives - February 2016

Poll 4

"New tax incentives for investments in technology and innovation businesses and start-ups are likely to be inefficient."

 

Agree

5

Very hard to give a confident response without full details of actual conditions. Past experience with film investment tax concession schemes (although somewhat different) suggests more funding, but of lower quality ventures.


Bah Humbug Australia - December 2015

Poll 3

"Giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash."

 

Disagree

8

Statement assumes economic rationality and no consideration given to interpersonal relations and reactions to gift-giving nor behavioural biases.


Penalty Rates Reform - November 2015

Poll 2

"Aligning Sunday penalty rates for hospitality, entertainment and retailing industries with the current levels for Saturday, as proposed in the Productivity Commission's draft report, will lead to more employment and greater availability of services in these industries on Sundays."

 

Strongly agree

9

There is a problem with what is actually meant by penalty rates. Is it the rate for "overtime" eg someone doing more than 35 hours per week with the overtime being on sunday, or simply a rate paid to someone who works on sunday regardless of whether they work at any other time of the week. If the latter, it is not clear why sunday rates should differ from other days - but arguably should differ (given social views on "weekend") if weekly employment contract offered by employer requires some part of work to be on weekend.