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Author's Name: Michael KNOX
Date: Tue 12 Feb 2019

Michael Knox

Michael Knox

Michael was an Australian Trade Commissioner serving in Saudi Arabia and Indonesia.  He joined Morgans (now Morgans Financial Limited) in Sydney in 1988.  He was Chief Institutional Options Dealer until moving to Brisbane in 1990 as Economist and Strategist.  He joined the Board of Morgan Stockbroking in 1996.  He became Director of Strategy and Chief Economist in 1998.

Michael has served on many Queensland Government advisory committees.  He was Chairman of the Queensland Food Industry Strategy Committee in 1992, a Member of the Consultative Committee of the Ipswich Development Board in 1993, a Member of the Queensland Tourism Strategy Committee in 1994 and a Member of the Ministerial Advisory Committee on Economic Development in 1997.   From 2003 to 2012, he was Chairman of the Advisory Committee of School of Economics and Finance at the Queensland University of Technology.  He has been a Governor of the American Chamber of Commerce from 1997 to 2007.  In 2008, Michael joined the Board of The City of Brisbane Investment Corporation Pty Ltd.  Michael was the President of the Economic Society of Australia (Qld) Inc from 2009 to 2013.  He is now the immediate post President.

Subject Area Expertise

 

Website

http://www.morgans.com.au/brisbane


Responses (24)


Banking Royal Commission and the Credit Crunch - October 2018

Poll 33

Proposition 1: "There is a significant risk that, either as a result of the findings and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry or as a result of the financial institutions' response to those findings, credit will become less readily available to Australian households or businesses."

Proposition 2: "Assuming credit becomes less readily available to Australian households or businesses, this will in turn have adverse consequences for the performance of the Australian economy."

 

1 - Agree

2 - Uncertain (neither agree nor disagree)

1 - I have been surprised at the number of business and individual investors who
have asked me if the decrease in business and home lending that they observe is caused by the Banking Royal Commission.  That the two are related to each other seems  to be commonly believed by many members of the Australian public.

This may simply be because the public sees house prices moving down at the same time as the Banking Royal Commission is in session. The increase in bank reserves that have been implemented under supervision of the RBA since January 2015  do have the effect of a moderate tightening of monetary policy even though the cash rate has remained unchanged. This may be a better explanation for the tightening of lending since  that time.


Could the advent of the Royal Commission result in banks becoming more risk averse? It would be reasonable to expect that it might.

2 - This depends upon the RBA reaction.  Should the RBA react to a reduction in bank lending by further cuts in the cash rate, then the two effects might be expected to cancel each other out.


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."

 

Strongly agree

9

Holland et al (2016) do a nation wide US survey of the contribution  of electric vehicles to greenhouse gases in different US locations. They note that in the overwhelming majority of locations the greenhouse gases from generating electricity to charge electric vehicles is GREATER than if the vehicles had been powered by internal combustion engines. Electric vehicles only decrease greenhouse gases in net in very congested major city locations. This suggests than any net environmental benefit  from electric vehicles is vastly overstated.  Hence the pricing of road use for electric vehicles should be the same as fossil powered vehicle.


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."

 

Strongly agree

9

The underlying problem in the availability of homes in Australia is under investment in Urban Transport Infrastructure. Increased investment in Urban Transport infrastructure will allow the development of land for an increased number of home sites. This in turn will allow the building of an increased number of homes. This increase in supply will put downward pressure on real home 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 - Strongly disagree

1 - Australia is a capital importing economy. We constantly need to raise funds on the international wholesale capital market. We currently still enjoy a AAA rating
which allows us to raise funds at a reduced rate.

A relatively low public debt to GDP ratio is one of a number of indicators which
have to be maintained at a healthy level to allow us to continue to enjoy that reduced rate.

2 - The actual cost of corporate tax cuts is very small relative to GDP. In a debate on Tax policy in Philadelphia in January, Kevin Hassett, the Chair to the Presidents council of Economic Advisors noted that the net costs of US corporate tax cuts was only $US300 billion dollars. This is small compared to a US GDP of almost $US20 Trillion .


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."

 

Strongly disagree

9

In a paper we published for our clients last year on 26 October we suggested that the cut in US corporate tax cuts would "result in a shift back to the US of some 34% of US corporate income."Our paper was based on an extensive literature published as a reference list to the "Corporate Tax Reform and Wages: Theory and evidence," published by the Council of Economic Advisers of the US President in October 2017. A shift of corporate income of this side back to the US will not just effect Australia but many other countries as well.


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."

 

Strongly disagree

9

Let us take the case of UBER drivers. UBER generates increased productivity by allowing drivers and passengers to find each other more quickly and efficiently. On a trip to the USA in January I witnessed the results. In the three cities I was in Los Angeles, Philadelphia and New York, UBER was MORE EXPENSIVE than Taxis. Because of the income sharing system of UBER this suggests that UBER drivers were better paid than ordinary Taxi drivers. UBER drivers were benefiting from the higher demand for a more productive service.


Journalism as a public good - January 2018

Poll 25

Proposition 1: "The modern phenomena of information overload and social-media-fuelled 'fake news' bring into focus the value of quality journalism. Quality journalism has a public-good dimension that warrants public support."

Proposition 2: "The Australian government presently provides funding for the ABC and SBS, Australia's independent public broadcasters. The Australian government should increase its financial support of quality journalism."

 

1 - Agree

2 -

1 - Fake news is really opinion repacked as reporting. This  arises in internet published news because of the way the google search  algorithm selects controversial items to a more prominent level. The same  publication in print form will appear much more moderate.

Sure, we need public support to good journalism but this  should be in the form of better training for journalists rather than spending  on public broadcasting.

2 - There is no evidence that public broadcasters are less  biased than private broadcasters. Hence, more public spending does not address  the issue.


Robots, artificial intelligence and the 'future of work' - October 2017

Poll 23

Question A: "Holding labor market institutions and job training fixed, rising use of robots and artificial intelligence is likely to increase substantially the number of workers in Australia who are unemployed for long periods."

Question B: "Rising use of robots and artificial intelligence in Australia is likely to create benefits large enough that they could be used to compensate those workers who are substantially negatively affected for their lost wages."

 

A - Disagree

B - Agree


Like previous expansions of the capital base, we might reasonably expect that the jobs that robots fit will be replaced by others jobs that may not yet exist. We also expect that just like previous cycles of job replacements, the process will be far from seamless. 


The Finkel Review - August 2017

Poll 21

"The Finkel Review has recommended a mandatory certificate scheme that obliges electricity retailers to purchase a certain proportion of the electricity they sell from sources of electricity whose emission intensity is below a defined level. This is preferable to conventional approaches to the pricing of externalities, such as an emission tax or cap and trade scheme."

 

Agree

7

The question is wrong. The choice is between the Finkel System and the current highly disfuntional state based renewable energy target.  The alternative of an internationally functioning Cap and Trade system including China and India might be better in theory. However repeated attempts over more than 20 years have been unable to construct such a market in practise.


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

8

A better comparison would be the US example of the Congressional Budget Office. This takes its forcasts from a sample of Private Sector Forecasters. In Australia the forecasters provide very good aggregate forecasts but they do not provide the granular detail that is required for budget preparation.


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

8

The problem seems to be the supporting legislation for the Renewable Energy Target. This subsidises wind and solar energy but not gas or coal.The renewable energy target nationally needs to be frozen in place. Other wise the current crisis  will get worse and worse.The moratorium for gas exploration in some states needs to be lifted.Farmers need to be  rewarded for gas found on their farms in all states as they are in Queensland.Gas needs to be treated as the low emission fuel source that it is.


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 disagree

8

The proposal to increase capital gains tax on housing investment is part of a proposal to increase capital gains tax generally. Increasing capital gains tax reduces the return from investing. This would result in a reduction in the rate of private fixed capital investment. This in turn would decrease employment growth.While superficially aimed at" the big end of town" this proposal in the end would damage ordinary workers jobs.


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."

 

Disagree

8

We should recall that both candidates reject the Trans Pacific Partnership, so to make a comparison of the candidates we should look at there fiscal programs. A non partisan analysis can be found on the website of The Committee for a Responsible Federal budget.In a newsletter published for our clients on 5 November. We find that the Republican program expands the US budget deficit expands the US budget deficit from 3.3 % of GDP now to 4.5 % in 2018. This compared to a Democrat budget deficit of 3.5% of GDP in 2018. Hence the Republican budget provides more stimulus to world trade and hence the Australian economy. The most important feature of the Republican program seems to be the reduction in the headline corporate tax rate from 35% to 15% together with the elimination of almost all corporate tax deductions. We note that the effective US corporate is now only 18 %. We estimate that this corporate tax reform would increase after tax corporate earnings by 20% This should increase US private fixed capital investment both in the US and in Australia. Our news letter is on our website


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.

 

Agree

8

Behavioural Economics provides useful insights into individual and collective behaviour . Many of these insights build upon those already gained in the discipline of Marketing.


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 - Disagree

8

A "Nudge " may merely simplify  choices and enable clients to understand the options available within public programs.

PART 2 - Disagree

8

A "Nudge " may merely simplify  choices and enable clients to understand the options available within public programs.


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

9

Central Banks appear to be quite good at targeting inflation. They seem to be really bad at targeting real GDP. The illusion that some central banks have been  achieving  steady results in nominal GDP(implicit targeting nominal GDP) may just be a result of their success with the inflation component of nominal GDP. Inflation targeting has been a success. The period of inflation targeting since the early 1990's has given Australia its longest period without recession .At the current rate of decline, unemployment should fall below the natural rate of around 5.3% no later than 2017. Notably,  Australia has avoided the severe recession after  the resources boom that befell  Brazil  and some other resource rich countries. '"This wheel ain't broke". We have no reason to fix it.


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."

 

Disagree

9

We tested the hypothesis that tax cuts would generate a large increase to GDP by testing data for real corporate after tax earnings of listed companies against Real GDP. We found than a five percent cut in company tax rate would increase GDP by 1.1 percent. The P statistic of the relationship was 13 chances in 1000.


Budget 2016-17 - Returning to surplus - May 2016

Poll 7

"The recently released 2016-17 Commonwealth Budget projects that the Australian Government's underlying cash balance will return to surplus by 2020?21*. Australian politicians should rebalance the budget with greater urgency."

 

Agree

8

We know in theory that we do not require fiscal stimulus when monetary policy is above the zero bound. Even with a cash rate at 1.75% we are still above that point.      The problem though is that rent seeking lobby groups continue to support spending for this or for that. This is usually dressed up as "good for growth".         In practice even the zero bound has not proved a barrier to further monetary stimulus. Quantitive easing in the US, in the UK and now in Europe has taken up the task of stimulus at the zero bound previously reserved for  fiscal stimulus.      With growth then adequately supported by monetary policy we may the safely approach the issue of narrowing the fiscal deficit in order to preserve the high rating of our national debt.


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."

 

Strongly agree

9

Many of the opportunities available in the healthcare and aged care sectors are so large they will require consortiums of companies which in Australia are competitors.


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)

6

The ability of locations to capture the benefits of major events  depends on the bargain they can do on reaping the considerable income available from television rights.If they are indeed receiving enough of television right income to balance the costs of the event then the a positive promotional effect of the event will put the total benefits over the line into the positive.


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."

 

Disagree

8

These tax incentive have the objective of constructing an entirely new industry in Australia. Start Up Funds only exit now in tiny enclaves and only in Sydney.We need to build a new area of financial intermediation in this sector from the ground up. The incentives appear to be aimed at building a broad base of participation in funding start ups and an increased pool of expertise as well as an increased volume of start up funds.


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

The real question is whose needs are being satisfied. Is it the gift recipient or the gift giver? I suggest it is the gift giver. The gift giver creates or supports social cohesion by giving the gift.Part of the act of giving a gift is to ask the recipient what they want for Christmas. This act opens an exchange between the giver and the recipient.Amongst the responses that a recipient might give is that they wish a cash gift or voucher. In this case and only this case should the giver provide a cash gift.The act of gift giving is an exchange that creates a social bond. Creating this social bond is of benefit to the giver.


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

10

Penalty rates actually penalise the unemployed by reducing the demand for service employees.Aligning Sunday rates with Saturday rates would increase output in the services sector as well as increasing employment.The Australian services sector need all the help it can get to help it to grow while Australia continues to suffer from the slump in non residential construction at the end of the mining construction boom.