Monday, November 13, 2017

Chart of the Week: Don’t Bet On Real Trade Growth

It was a good run, but Malaysia’s trade growth numbers will “normalise” within the next couple of months (RM millions):


However, this is partly a price phenomenon (index numbers; 2010=100):


On the import side, it’s food, fuel, and edible oils and fats; on the export side, fuel and electronics. Import volume, like imports overall, appear to have plateaued, but there’s still some export volume upside, which is still fairly broad-based.

Two conclusions: Despite the steady increase in export volume, I think this runup is at an end – there’s a lot of volatility in the sub-indices, which means that this increase is hiding a lot of movement underneath. The price trends are mostly oil & gas related. Trade volume in the rest of East Asia has also plateaued, so most of the double-digit growth we’re still seeing across the region is simply from the low base last year. That implies growth rates will gradually drop to “normal” levels, which means something in the low single digits again, as the base shifts to the higher numbers seen earlier this year.

Friday, November 10, 2017

Taxing Land

I’ve been meaning to highlight this, but better late than never (excerpt):

Faster Growth Begins With a Land Tax in U.S. Cities
This would lower land costs, encouraging affordable housing and more density.
By Noah Smith

…In cities, especially large metropolises like New York and tech hubs like San Francisco, the land under a building is often worth a lot more than the buildings itself. When a city gets denser or more desirable, lucky landowners reap windfalls as land prices appreciate. But these windfalls aren’t just unfair -- they raise both rents and housing prices, pushing potential new residents out of a city and choking off its growth.

So it makes sense to tax the value of land. A land-value tax, or LVT, is like a property tax, but with a deduction for the value of buildings and other improvements. The tax would reduce land prices and increase the incentive to build more, which in turn will help drive down rents, making a city more affordable. And because land is a fixed quantity, taxing it doesn’t shrink the economy like taxes on wages and capital sometimes do. Also, since you’re taxing a windfall, it’s hard for landowners to argue that the tax isn’t fair. The money raised with a land-value tax can be spent building affordable housing for the poor.

Therefore, a land-value tax is an efficient and fair way to take a city that now works only for lucky prosperous landowners, and turn it into a place where the working class can afford to make a decent life….

…In the U.S., Pennsylvania is the LVT trailblazer. More than a dozen cities in that state use split-rate taxation -- one tax on land value, and a lower rate on improvements, such as buildings. Some of these experiments, like the one in Altoona, have failed, probably due to ineffective implementation and businesses’ failure to understand the novel tax structure.

But in Pittsburgh, a large city where valuable locations are scarce, the tax has been a success….

BNM Watch: The Countdown Has Started

Yesterday’s MPC statement is about as clear a statement of intent as you can get from a central bank (excerpt; emphasis added):

Monetary Policy Statement

...At the current level of the OPR, the stance of monetary policy remains accommodative. Given the strength of the global and domestic macroeconomic conditions, the Monetary Policy Committee may consider reviewing the current degree of monetary accommodation. This is to ensure the sustainability of the growth prospects of the Malaysian economy....

Tuesday, November 7, 2017

Thoughts on Alternative Budget 2018

So, I’ve finally sat down to read through Pakatan Harapan’s alternative budget for 2018. There are some good ideas here, and a fair share of bad ones, but no more than expected. The numbers are bonkers, but I expected that since this is more a political manifesto than a real fiscal document. I’ll give most of it a pass except the more egregious ones, and like many, I note that some of the policy objectives and prescriptions are contradictory. At least one proposal has me upset, but I’ll leave that for the very last.

Can the (overall) numbers be achieved? I’d say yes. If the government really wanted to, they could go with a balanced budget tomorrow. But I think it would involve as much cutting the provision of public goods and services, as it would be some putative “savings'” from reducing corruption and improving governance. I’m sceptical that there’s that much savings to be had from that source.

Wednesday, November 1, 2017

Thoughts on Budget 2018

I missed most of the Budget speech this year, having just landed from an overseas trip. That and jet lag meant I’m late in catching up on things, and today’s the first day I’m comfortable enough with the numbers and the anmouncements to actually comment on them. I’ll have something more to say about the opposition’s alternative budget(s) later.

First up, on the economic forecasts (2017: 5.2%-5.7%; 2018: 5.0%-5.5%). They’re eminently achievable, especially with the high frequency data coming in. The numbers continue to surprise on the upside, though some of that is coming from the low base we had last year. Even if we see just trend growth for the rest of 2017 and into 2018, the forecasts should bear out.