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Preview: Comments on Peter Martin: The Treasurer's unprescient look at the future

Comments on Peter Martin: The Treasurer's unprescient look at the future





Updated: 2015-09-30T08:04:03.541+10:00

 



Peter,Stern is discounting real flows and (appopri...

2007-04-04T11:32:00.000+10:00

Peter,

Stern is discounting real flows and (appopriately) uses a real discount rate. You can't cite me a nominal rate to establish it is too low.

The nominal bond rate is 5 percent. If inflation were to stay in the RBAs 2-3 percent target that gives a real rate of 2-3 percent, not much more than 1.4 percent. That's not even accounting for taxes and the risk that the RBA would not always meet its target over the next 10 years.

I think Stern's rate is too low - but so is the bond rate (it should be only be used to discount flows uncorrelatd with market risk). Given Stern's assumptions (that the costs were proprotional to GDP) he should have used the market return as the discount rate (about 8 per cent real).



Adage, It looks as if you are doing great things -...

2007-04-04T10:25:00.000+10:00

Adage, It looks as if you are doing great things - and doing them before everyone else does.

anonymous - according to the Treasurer Stern used a discount rate of around 1.4 per cent.

Here's what the Treasurer said:

I think the discount rate that he used was 1.4 from memory. Now, some people would say a discount rate of you know, the long term or 30 year bond rate might be more appropriate. Now you can have arguments about those things and over a 50 year period it leads to very different results. That is the point I am making. But he would say and I would agree with him, that whether you do it on 1.4 or whether you do it on something else, it will have an economic effect. There is no doubt about that and I don’t question that for a moment. I am just saying that there is a lot of academic debate about the actual numbers.

In Australia the long-term bond rate is more than 5 per cent.

About the extrapolation that PBS spending was going to reach 100 per cent of GDP. Yes it is nonsensensical: that is what you get when you extrapolate two exponential increases, one (PBS spending) larger than the other (GDP). That is the point that Guest and MacDonald were making: the methodolgy used by Australia's Treasury gives silly answers.



It's simple. If we don't address the climate chang...

2007-04-03T17:36:00.000+10:00

It's simple. If we don't address the climate change issues, then everything else will simply go up in a puff of smoke. Problem solved.
But seriously - we're not climate change experts. We are doing our best to support organisations to retain and attract mature workers. We don't meet many 'old' 55 year olds. And most of them have so much to contribute to the Australian workplace. It's not an attractive proposition to 'work' longer - but we'd recommend rethinking what work could look like from 50+. It's a candidate's market and many mature workers have the opportunity to determine how they want to keep contributing to our economy.



"If Stern had used the rate the Treasurer suggeste...

2007-04-03T15:22:00.000+10:00

"If Stern had used the rate the Treasurer suggested – the long-term bond rate"

But he did use a real discount rate of around 2 percent real, which is about the long term bond rate. (He assumes a zero rate of time preference, not a zero discount rate).

Almost as puzzling as "at that rate Australia’s PBS spending would account for one third of GDP by 2100 and 100% by 2126"

How can it reach 100% of GDP. Did they really assume all the other components would fall to zero? Or did they just assume a growth rate of GDP which was not the sum of the growth of its components?