Matthew Denholm Imre Sulusinszky The Australian

A NEW report concludes the economic benefits of the Gunns Tasmanian pulp mill have been vastly overstated and the controversial project will most likely have an overall negative economic impact. The report by the National Institute of Economic and Industry Research, to be released today, finds Gunns’s estimate of a $3 billion-plus positive impact to be based on flawed modelling. Taking into account these “flaws” and factors such as risks to the tourism industry and alternative higher value uses for Tasmania’s timber, NIEIR concludes the mill will most likely cost the economy $300 million. The report, prepared by the NIEIR’s executive director Peter Brain, was commissioned by The Wilderness Society, a staunch opponent of Gunns’s plans to build the $2 billion mill in theTamar Valley, north of Launceston. Gunns executive chairman John Gay dismissed the report as “claptrap from The Wilderness Society”.

Dr Brain’s report is critical of Gunns’s economic claims, including those in a report commissioned by the company from Allen Consulting in May 2006. That report, which formed part of Gunns’s draft impact statement on the mill, concluded the project would add $3.3 billion to Tasmania’s economy to 2030, create 1617 jobs and add $6.7billion to gross state product. Dr Brain concludes these findings are “not credible” and that the earlier study had incorrectly assessed the amount of expenditure that would be generated from the project. His report says the results could be explained only by modelling errors or else “unjustified adjustment of the model results that make the case for the pulp mill more favourable”. Dr Brain also factored in the cost from the loss of agricultural land to grow the plantations that will feed the mill, particularly after its first 10 years of operation. Dr Brain said the $300 million loss was the “mid-point” of his expectations. “If everything went wrong with the mill, the negative impact could be as high as $3billion and if everything went right the best outcome could be positive $1.3billion,” he said. Read more here

What Dr Brain says,
What the Wilderness Society says ……

TASMANIAN PULP MILL FAILS ECONOMIC BENEFIT TEST

LEADING ECONOMIST CRITICAL OF GUNNS ECONOMIC STUDIES

A new report by one of Australia’s leading economists has found that the proposed pulp mill for Tasmania’s North East will not create the economic benefits claimed by supporters and that an earlier economic study on the project contained major flaws.

Dr Peter Brain, Executive Director of the National Institute of Economic and Industry Research (NIEIR), believes the economic impact of mill on Tasmania is more likely to be negative -$0.3 billion from the operation of the Mill than the $3 billion positive impact claimed previously. These estimates refer to cumulative discounted Tasmanian consumption expenditure to 2030 which is the indicator used for welfare assessment.

If construction benefits and added the benefits to Tasmanian households are negligible.

Dr Brain believes the earlier work by consultants commissioned by the company proposing the mill, Gunns Limited, overstated the economic benefits of the mill either because of modelling errors, or some other reason.

He said the earlier work overstated gains to Tasmania mainly by incorrectly assessing the amount of expenditure that would be generated within the state and by failing to look at alterative higher value uses for Tasmanian timber.

The NIEIR study also took account of risks to the tourism industry, the risk of chemical spillage, risks to Gunns viability, a blow-out in capital costs, environmental and health impacts and risks to other forest and wood products industries.

Dr Brain said the negative $300,000 impact was the mid-point of his expectations. He said that if everything went wrong with the mill the negative impact could be as high as $3 billion and if everything went right the best outcome could be positive $1.3 billion (still less than half of what the earlier reports had given as the likely impact). However the top end of expectations has a negligible probability of being reached as does the bottom range of negative outcomes.

He said he had used very conservative assumptions in his economic modelling to give the mill every chance of proving itself but despite this the mill did not come out as an economic positive for Tasmania.

However, Dr Brain said even if the mill did not go ahead there were a number of positive initiatives that could be taken to improve the regional economy in Tasmania that were consistent with the state’s economic planning framework.

He said a great deal can be done to develop strong economic value from the state’s forest resources by focusing on high value products complemented by the emerging markets for environmental products and services as well as carbon and bio offsets.

The report was commissioned from the NIEIR by The Wilderness Society.

Summary and specific expertise

NAME: Peter J. BRAIN DATE OF BIRTH: 1947

EDUCATION: Ph.D (NSW), Economics; B.Comm. (NSW)

SUMMARY AND SPECIFIC EXPERTISE:
Dr Brain is one of Australia’s best known economists in the development and application of macroeconomic models. Since co-founding NIEIR in 1984, Dr Brain has participated in over 200 economic consulting projects, most of which he has directed or co-directed. This includes past and on-going projects in South Africa, Australia and New Zealand. Dr Brain was one of the few economists to forecast the current economic crisis throughout the Asian region, and participates widely in debate on issues of general economic interest.

His expertise covers:
• Macroeconomic analysis and model construction of national, State and regional economies along with detailed models of key Australian institutions including Telstra Corporation, Australia Post, OneSteel, and the State Electricity Authorities. For 25 years, the preparation of detailed short, medium and long term projections of all aspects of the Australian economy.
• Responsible for the annual NIEIR/ALGA State of the Regions reports since 1998. This report documents the latest trends in economic performance across all Australian LGAs aggregated into 62 regions. The reports also monitor the latest developments in regional policy analysis.
• Australian representative to the United Nations’ Link Forecasting Group which prepares semi annual forecasts of all major economies.
• NIEIR’s Director of the Council of Australian Ministers. Energy economic security scenario development project.
• Director of a number of large scale regional assessment projects assessing infrastructure requirements for major Australian cities and regions, including South East Queensland, Sydney and Melbourne.
• Numerous studies on cost-benefit of physical infrastructure expansion including power stations, transport (roads, railways) infrastructure, community infrastructure (three evaluations of the Building Better Cities Program), and airports.
• Many studies into the economic feasibility of industrial investments including paper mills, steel mills, aluminium plants, casinos, hotels, gas pipelines etc.
• Directed a major project into the development of strategies for the South Australian manufacturing sector and the development of analytical tools and models to be used by the South Australian industry assistance agencies for cost-benefit assessment of private sector investment proposals.
• Developer of a multi-sector model of South Africa. This was applied to develop a development plan for South Africa covering physical and human capital infrastructure requirements, labour market programs, and industry performance potential.
• Worked with South African Government Agencies in developing the Central Government budget for 1994-95 and in the capacity of Chairman of the RDP Drafting Committee for the Department of State President, drafted a technical version of the RDP plan covering most aspects of the public sector to 2010.
• Developed a multi-sector model of New Zealand for analysing impact of changes in tariffs for the motor vehicle industry.
• Numerous studies into industry policy issues including the effects of tariffs, reform of public enterprises, reform of the tax system, export incentive schemes.
WORK EXPERIENCE:
1984-Present, Executive Director, National Institute of Economic and Industry Research
Project Director, economic analysis of the Republic of South Africa’s (RSA) Reconstruction and development (RDP) program.

Project Director, Strategic impact replacement in South Australia.

Project Director, study of New Zealand Automotive Industry Policy

Other projects include those for government departments (State, federal) electrical authorities, and a range of private corporations (e.g. BHP); he provides most of the macroeconomic modelling and analysis to NIEIR projects requiring macroeconomic analysis, for example recent work on greenhouse policy options.

Dr Brain has been, and continues to be on a regular basis, involved in:
• the preparation of detailed international, national, state and regional projections; and
• the preparation of reports for some of Australia’s largest organisations to assist in their corporate planning functions.

Currently, on an on-going basis, Dr Brain serves as:
• Corporate Planning Advisor to OneSteel.
This involves projecting Australia’s physical infrastructure, dwelling and non-dwelling construction requirements for Australia over a ten year horizon. This is related back to estimates of steel demand taking into account the efforts of technological change and relative costs on inter-material substitution.
• Corporate Planning Advisor to Telstra Corporation.
This involves analysing the impact of the evolution of the indicators driving the demand for telecommunication services over a five to ten year period.

1974-1984, Director, IMP model project, and Deputy Director of the Institute of Applied Economic and Social Research, University of Melbourne
Initial development and application of the IMP (Institute Multi-Purpose) Model of the Australian economy.

Publications authored or co-authored by Dr Brain include the following:
• Population Immigration and the Australian Economy, Brain, Smith and Schuyers (1979), Croon Helm.
• Energy and the Australian Economy, Brain and Schuyers (1981), Longman Cheshire.
• Brain, Peter J., The Macroeconomic Structure of the Australian Economy. Longman Cheshire, Melbourne, 1987.
• Brain, Peter J., Beyond Meltdown – the global battle for sustained growth. Scribe Publications, Melbourne, 1999. This book deals with the causes and effects of the Asian economic meltdown, and possible strategies for dealing with the fallout from this crisis.

What the Wilderness Society says:

MEDIA RELEASE- 29th January 2008

NEW REPORT HIGHLIGHTS PULP MILL’S NEGATIVE IMPACT ON TASMANIAN ECONOMY

Claims that the controversial Tamar Valley pulp mill will produce an economic benefit for Tasmania have been found to be exaggerated and is likely to instead have a negative impact on the state’s economy, a new study by one of Australia’s leading economists has found.

The study by National Institute of Economic and Industry Research Executive Director Dr Peter Brain found the most likely impact of the mill on the Tasmanian economy over 20 years would be negative $0.3 billion not the positive $3 billion claimed in government assessments.

Commissioned by The Wilderness Society, the study concluded that earlier work by the Allens Consulting Group both overstated the benefits and ignored negative impacts of the proposed mill on Tasmania.

The Wilderness Society called on both the Federal and State Governments to reconsider their support for the pulp mill in light of the study’s findings.

“This research confirms that Gunns’ proposed pulp mill will be a bad investment for Tasmania’s economic future,” said Paul Oosting pulp mill campaigner for The Wilderness Society. “The financial costs it highlights sends a clear message to both the state and federal governments that they should rethink their support for the pulp mill.”

“In light of the Prime Minister’s ‘War on Inflation’, it is important government funds not be poured into in costly projects that would fuel inflationary pressures and increase the shortage of skilled labour, all for no positive long term economic benefit.”

The Wilderness Society supports federal and state Government investment in the Tamar Valley area to boost long term employment and jobs growth in the region.

“This should be done in a way that builds long-term sustainable industries while protecting the natural assets of Tasmania for future generations. There are many opportunities that are worthy of government support and can achieve both environmental and economic outcomes,” Mr Oosting said.

“The proposed pulp mill would destroy Tasmania’s reputation for being clean and green. It would clog the roads with log trucks, and disturb the community by displacing long term residents for short-term construction workers.”

“Tasmanians would bear these costs for decades, with no substantial economic benefit for the community. It is time to put this pulp mill behind us and look at better opportunities in the interest of Tasmania’s future generations,” concluded Mr Oosting.

What the pollies say: In Their Own Words