Mar 10, 2016

Call for code of conduct for economic modellers after saga surrounding BIS Shrapnel negative gearing modelling

The use and abuse of economic modelling has become so bad in Australia that we need to adopt a code of conduct for economic consultants, similar to those followed by auditors and actuaries, the Australia Institute says.
The Australia Institute is calling for a code of conduct to be introduced in the wake of the saga surrounding modelling produced by BIS Shrapnel on Thursday, which purports to show the economic consequences of restricting negative gearing to new residential properties.
The modelling was being championed by Treasurer Scott Morrison, who said it showed Labor's proposal on negative gearing was ill-designed.

It predicted that abolishing negative gearing on established dwellings would wipe $19 billion from Australia's gross domestic product and push up rental prices by 10 per cent.

But BIS Shrapnel associate director Kim Hawtrey would not say who commissioned the modelling - despite the obvious political ramifications of its conclusions - saying only they were a "private client."

And the report also did not state clearly what its assumptions are, nor what type of modelling programs it used.
The lack of transparency has prompted the Australia Institute to call for a code of conduct to be introduced, saying the misuse of such modelling needs to come to an end.
"On Thursday we saw modelling driven into the centre of the tax reform debate by an unknown vested interest," Australia Institute executive director Ben Oquist said.
"While the startling allegations in the BIS Shrapnel report have been quickly torn apart by many economists, it has nonetheless misinformed and mongered fear among the public.
"We call on the government to develop a code of conduct to ensure the standard of all economic modelling used to inform Government is transparent and of a high standard," he said.
"It's not too much to ask for a consistent standard. There is absolutely no reason why all sides can't at least agree on the minimum rules."
Treasurer Scott Morrison seized on the BIS report, describing it as "an indictment on Labor's policy".
"What it shows is [that] they just haven't done their homework on this," he said.
But he later came under fire after BIS Shrapnel clarified that its modelling was prepared before Labor's policy was announced.
"The assumptions were set several months ago, and the analysis done late last year, well before Labor announced its policy," BIS Shrapnel associate director Kim Hawtrey told Fairfax Media.
Australia Institute executive director Ben Oquist said state and federal governments, who are the main audience for economic modelling, have a unique ability to influence the behaviour of economic modellers by requiring that all modelling aimed at influencing government decisions conform to minimum standards.
He says the code of conduct should require modellers to disclose who, if anyone, commissioned a piece of work, to clearly discuss their key assumptions, to provide sensitivity analysis where appropriate, and to explain the choice of economic model.
He says modellers should also take responsibility for the plausibility of their results, and the full modelling results should be made publicly available when they are released to the media.
"Auditors have a code of conduct because financial information is open to abuse and people rely on this information to make important decisions, and actuaries have a code of conduct that includes context, basic rules and a declaration of fairness and accuracy," Mr Oquist said.
"A consistent standard would be in the interest of the economic modelling industry and its reputation."

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