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Author's Name: Adrian Blundell-Wignall
Date: Mon 24 May 2021

Adrian Blundell-Wignall

Dr Adrian Blundell-Wignall, Adjunct Professor

Adrian is Adjunct Professor at the University of Sydney (School of Economics), and the former Director of Financial and Enterprise Affairs at the OECD (a directorate that supports governments in five policy areas: anti-briberycompetitioncorporate affairsinternational investment, financial marketsinsurance and private pensions.). He has been the Special Advisor to the OECD Secretary-General on Financial Markets in Paris, and serves on the OECD Pension Board from 2009-present. He has been the Head of Asset Allocation at BT Funds Management (now Pendal Asset Management).

Adrian is the founder and chairman of a charitable foundation (The Anika Foundation) that raises and invests an endowment fund to provide scholarships for research into adolescent depression and suicide prevention.

Adrian is an Australian citizen. He has a 1st class Honours degree and PhD in Economics from Cambridge University, UK.

He is the author of extensive publications in the areas of financial markets, globalisation and policy in learned journals and books. See article links in https://www.oecd.org/finance/financial-markets/adrianblundell-wignall.htm. Most recently he has published the book, Globalisation and Finance at the Crossroads https://www.palgrave.com/gp/book/9783319726755


Responses (20)


Western Australian GST deal

Poll 63

April Poll - panellists were asked about the GST deal with Western Australia.  The following two questions were posed: 

"Is the long-standing arrangement broadly the best method of distributing the nationally-collected GST revenue?" and "Should the 2018 changes be kept or scrapped?"

 

YES - The needs basis seems reasonable.

Scrapped

What's needed is a focus on the needs of Aboriginal communities: not a simple add-on to the bottom lines of state budgets, but a GST allocation into a special purpose vehicle for Aboriginal development. The states do a very poor job in Aboriginal economic and social development. Some of the GST funds should be targeted to this via a dedicated special-purpose vehicle.


Transition to net zero - ape the US Inflation Reduction Act?

Poll 62

Panellists were asked "Which of the options set out below best describes the kind of approach the Australian government should take to the US Inflation Reduction Act? (Pick 1)"

 

To support homegrown emerging green technologies

Subsidise firms in the same industries that are receiving support in the US, such as battery manufac

Subsidies are more efficient than tax incentives, when the profit base of new industries is not sufficient to be an incentive. Subsidies for clean energy companies should be of a temporary nature, and and come with conditions (as in the USA). They should be reduced when new industries become viable. They should not apply to companies already substantially active in fossil fuel industries--this would risk going to the bottom line in a non-targeted way. The approach should be financed by cutting Australia's fossil fuel subsidies, which will accelerate transformation.


Reintroduction of the Carbon Price

Poll 61

Worried economists call for a carbon price, a tax on coal exports, and ‘green tariffs’ to get Australia on the path to net zero

 

Expedite the development of nuclear energy | Expedite building new transmission lines to connect renewable energy | Introduce an economy-wide cap and trade carbon price

What Australia exports in coal is almost two and a half times all the emissions we produce within Australia. What is the point of moving to net-zero on the latter while we do nothing on coal exports? Addressing coal via an export tax ? effective on metallurgical coal ? is something we can do now to raise the cost of steelmaking and reduce demand for coal. This would hurt foreign steel mills, not Australian-owned companies. Higher prices and a lower output for this sector is a win-win for us and the global economy. It is indicative of the debate in Australia that this is not even included as an option in the survey.


We can and should keep unemployment below 4%, says our survey of top economists

Poll 60

Australia’s leading economists believe Australia can sustain an unemployment rate as low as 3.75% – much lower than the latest Reserve Bank estimate of 4.25% and the Treasury’s latest estimate of 4.5%.

 

improving the quality of primary and secondary education, relaxing industrial relations regulation to allow for greater "flexibility" (as defined by employers), increasing enrolments in tertiary education

4.5

The Nairu is not a helpful concept because it changes constantly depending on what else is going on in domestic policy and in the global economy. First, improving education and skills and keeping labour markets flexible are important if Australia is to find a future for itself outside of mining and finance. It is a competitive world. If we don't keep pace, the Nairu will be higher because the never-to-be properly employed group will rise. This involves school education but also tertiary, where in Australia the focus on attracting foreign students for the fees results in imbalances and pressure to reduce standards so they pass encouraging more to follow. This is happening and reduces the quality of degrees. It needs to be reversed. Second, on the inflation side, a given rate of unemployment will have different inflation implications depending on what the government is doing with fiscal policy. There can be little doubt that recent inflation is more to do with governments putting vast amounts of cash into private bank accounts related to Covid, that they have subsequently been spending. Demand has run ahead of supply. This has increased the Nairu for now. Third, the Nairu is less a domestic phenomenon than it was in the past. Globalisation has led to a domestic and globalised set of Phillips curves interacting with each other. Fourth, geopolitical events and climate change have pushed up inflation pressures for a given domestic unemployment rate. These feed through into wage claims unsupported by rising productivity growth. To achieve a given inflation target, the unemployment rate would need to be higher. I short, it is complex and there is no magic number for NAIRU even in the short run and certainly not the long run. NAIRU is not a very useful concept.


Budget 2023

Poll 59

Our panellists were asked the following 2023 budget question: "On May 9, the government delivered a budget designed, in the Treasurer's words, to strike a balance between relief, repair and restraint'.  What grade would you give the budget, given that objective: A, B, C, D, E or F?"

Wes Mountain/The Conversation, CC BY-ND - https://creativecommons.org/licenses/by-nd/4.0/

 

Overall rating: C - Keeping inflationary pressures in check: D

C

OVERALL COMMENTS: Helping the most vulnerable is a good thing. However, low productivity growth is Australia's fundamental economic problem. This budget does not address that issue. The budget outcome is strong because of our massive focus on fossil fuels, pumping it to China and contributing to climate change well above our local emissions. The budget is short on policies to prevent climate change and long on policies to help people deal with it. It is short on long-term policies that set the groundwork for changing this situation. (As an aside, tax crackdowns around the world have rarely raised significant revenue. Not to be counted on.) INFLATION COMMENTS: Capping prices and giving subsidies does not count as anti-inflation policy. Temporary effects are usually followed by catch up issues later. Putting cash in the hands of the household sector, all over the world and in Australia, was the main cause of the global inflation surge ? a government fiscal fault. Now Australia proposes to do more of that to compensate for that inflation. The propensity to consume out of increased income is always highest for low-income households. This budget will make the Reserve Bank's task harder, as it did during COVID.


How economists would raise $20 billion per year

Poll 58

When panellests were asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.

Photo credit by Joshua Hoehne on Unsplash

 

Efficiency picks: Broaden the set of goods and services captured by the GST Wind back deductions for negatively geared properties Increase resource taxese Equity picks: Wind back deductions for negatively geared properties Tax windfall profits Increase resource taxes

Exempting politically-sensitive goods and services is arbitrary and inefficient. Encouraging housing investment via negative gearing should have been dealt with years ago. It has contributed to the build up of exposure to property in the banking system--financial risk as interest rates rise. Few countries do this. Political capture is the main impediment to efficient policy in this area. Resources under the ground are the birthright of every Australian. A Resource Rent Tax (RRT) should apply. In Norway close to 100% of the profits of Equinor are poured into their sovereign wealth fund--which is what any resource-rich country should do. When a Norwegian is born they have a birthright of USD221,000 (AUD329,000). Every Australian has an equivalent average birthright of just AUD9400 in the Future Fund. Norway's Equinor is no less efficient than BHP, RIO etc. It's time for a RRT. This should be implemented with a broadened mandate for the Future Fund to invest the proceeds in energy transition. Politicians should ignore the usual hysteria that comes forth when this is discussed.


Leading economists back Federal Government action to curb rising gas and electricity prices

Poll 57

Australia’s top economists have overwhelmingly endorsed intervention to restrain gas and electricity prices, with only three of the 47 leading economists surveyed believing the best thing the government can do is to leave things to the market.

Photo credit: Wes Mountain/The Conversation, CC BY-ND

 

.

Reserve domestic gas equivalent to 15% of LNG production from each LNG export project (ie making the

Best of a list of uncomfortable choices. The WA policy seems to be tried and tested.


Is education or immigration the answer to our skills shortage? We asked 50 economists

Poll 56

Investing in Australians’ education is far more important than immigration in resolving the nation’s skills shortages, according to leading economists surveyed in the lead-up to this week’s jobs and skills summit.

The 50 top Australian economists polled by the Economic Society of Australia and The Conversation are recognised by their peers as leaders in their fields, including economic modelling, labour markets and public policy.

Wes Mountain/The Conversation, CC BY-ND

 

Equal opportunities and pay for women Migration policy Education and skills

Education and skills: Engineering universities similar to those in Sweden ? they are nothing to do with business school MBAs. Companies are involved: they work with the universities on setting the curriculum; provide all students with systematic work experience (not box ticking). 70% of CEOs come from these universities, and Sweden has a formidable record in creating global businesses that don't depend on digging holes and building houses. National productivity growth is the highest in the OECD.


'It’s important not to overreact’: Australia’s top economists on how to fix high inflation

Poll 55

Australia’s top economists are divided about how to tackle ballooning inflation of 6.1% that’s forecast to climb to a three-decade high of 7.75% by the end of the year.

Wes Mountain/The Conversation, CC BY-ND

 

Increase immigration Push for below-inflation wage rises in the Fair Work Commission Wind back government spending Structural policies for productivity and use broad money supply as a guide

2.5%

Productivity is lamentable in Australia, and needs addressing in the medium term. For monetary policy, the link between fiscal and money in the hands of households is important. Money was the best indicator of what was coming.


Prioritising issues for the incoming Government

Poll 54

Panellists were asked: 

"From this list, please pick the three issues you think will be the most important for the incoming government and should be the most important in the election".

Wes Mountain/The Conversation, CC BY-ND

 

.

Australia doesn't have a plan for the future that will require less dependence on digging holes, a greater need for self sufficiency in key sectors and a need to deal with climate change that has been and will continue to affect Australia more than other countries. Productivity from a highly educated population and research and development are key. Dealing with debt as interest rates rise will require strong sustainable growth. China and Russia are a threat to our democracy so defense spending will remain important.


Intake of permanent migrants

Poll 52

"What do you think the intake of permanent migrants should be in coming years"

Australia’s leading economists have overwhelmingly endorsed a return to the highest immigration intake on record, saying Australia should aim for at least 190,000 migrants per year as it opens its borders, up from the target of 160,000 per year set ahead of COVID.

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

.

190,000 is about right

160,000 maintains what has supported past trend growth, given birth and death rates. Continuing with 160,000 shows a lack of ambition and any vision for improving Australia's trend growth. 190,000 would be the policy of a government with an economic plan to improve Australia's performance.


Top Economists see no prolonged high inflation, no rate hike next year (Q4)

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 4

"Following the next Federal election, the incoming Federal Government should commission an independent Review of the Reserve Bank of Australia."

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

Disagree


Top Economists see no prolonged high inflation, no rate hike next year (Q3)

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 3 

"The Reserve Bank has, over the past 5 years, effectively used the tools available to it to achieve its goals of "maintaining the stability of the currency, ensuring full employment and furthering the 'economic prosperity and welfare of the people of Australia'."

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

Agree

7


Top Economists see no prolonged high inflation, no rate hike next year (Q2)

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 2

"When do you expect the Reserve Bank of Australia to next lift its cash rate?"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

.

6

2022


Top Economists see no prolonged high inflation, no rate hike next year (Q1)

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 1

"The current combination of Australian fiscal and monetary policy poses a serious risk of prolonged above-target inflation."

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

Agree

6

The independence of the RBA in the current structure with a focus on an inflation range is about right. Don't try to fix what isn't broken.


Australia’s top economists back carbon price, say benefits of net-zero outweigh cost

Poll 50

Ahead of November’s Glasgow climate talks, our panellists were asked

"Australia would likely benefit overall from the national economy transitioning to net-zero emissions by 2050"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

An economy-wide carbon price (either via a cap-and-trade scheme or an emissions tax)

Agree

Australia is the third largest contributor to CO2 emissions if scope 3 emissions are included (those that arise further downstream by countries who use our coal and petroleum products). So meeting our scope 1 and 2 zero emissions is a very minimal demand. The problem is global, and the only way to deal with it is carbon pricing in all countries and border equalisation taxes. Australia will be hit by this anyway, so we need to accelerate adjustment now via carbon pricing rather than be crippled later on.


Promoting vaccination uptake in Australia

Poll 49

"What measures should Australian governments adopt to promote demand for vaccination once supply is no longer a constraint?"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

Vaccine passports for higher-risk settings (eg. flights, restaurants, major events);Mandatory vaccination for higher risk occupations

In France, where i spend much of my time, it is clear that the Passe Sanitaire (a certificate with information about the bearer?s COVID vaccination status) has had by far the biggest effect in stimulating uptake of the vaccine, along with mandatory vaccination for occupations the require facing the public. It is discouraging that we don't seem to be able to take these decision quickly and without debate. As a child at school in the 50s, if you turned up at school on the day the polio or smallpox caravan was there you were lined up and injected or took you lump of sugar with the vaccine. There was no debate, thank heaven. The more we flip flop and vacillate on this, the greater the chance of new variants and more sickness. We need better leadership on this.


Policies to deliver higher wage growth

Poll 48

Our panellists were asked

"Higher wages growth is now a top priority of the RBA in its efforts to sustain stronger economic growth. Please identify the three of these government policies you think would best help deliver higher wages growth".  

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

.

Measures to boost productivity growth Maintaining high government spending in order to boost aggrega

These choices should be thought about in the context of an economic plan for the longer term. Reforming the education system and corporate governance to get rid of the elitism that entrenches inequality should be a part of that plan. That the best predictor of how well you do at school is how rich your parents are and where they went to school is a national tragedy. It is redistribution of opportunity, income and wealth that is the key issue. `The 'entitlement' and club economy that comes with all this permeates politicians, business leaders, and who gets the best jobs after completing school.


Transition to electric cars

Poll 47

This month, our panellists were asked whether Australia should take action to speed the transition to electric cars.

"As part of efforts to reduce carbon emissions, Australian governments should take action to accelerate the take up, or take no action to accelerate the take up of electric cars"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

 

.

8

None of the above are suitable. Set a binding price on carbon in general, tax Co2 emissions, and impose more strict Co2 emission limits on petrol and diesel cars. The market should drive the substitution towards electric cars based on prices. Subsidies and quantitative import restrictions and bans should be avoided.


The Federal Budget May 2021

Poll 46

"On May 11, the government delivered a budget designed, in the Treasurer's words, to 'secure Australia's economic recovery and build for the future'.  What grade would you give the budget given that objective, A, B, C, D, E, F?"

Photo credit Wes Mountain/The Conversation, CC BY-ND

 

.

B

I give the budget a creditable B because, while there were some very good aspects, I can?t help but feel the government erred by not buying vaccines on time to the (unnecessary) due to the cost top the budget in the years ahead. I also felt the effective interest rate assumptions are at the optimistic end. The very good things in the budget are those relating to a longer-run plan for growth? a healthy population with infrastructure investment needed to diversify away from dependence on mining. Full marks for aged care, infrastructure, mental health, preschool for all and women?s security. Supporting the digital economy and some of the changes to super, also rate a positive mention. On the vaccines, most of the cost is for 2021-2022. The vaccines should have been contracted for around March-2020 (as some countries did) with perhaps half the population vaccinated by now (as in Israel and the UK and US not far behind). We are only now beginning to vaccinate. There is enormous leverage to getting the vaccine timing right. It would have helped to get the economy back to work and the borders opened sooner which, in turn, would have saved unemployment benefits, tourism, aviation support and the need for the extension of temporary measures. We can?t point to how good we look versus other economies in GDP. We are a hard-to-get-to island unlike Europe and the Americas. There will be hidden cliff effects when support drops off or is withdrawn. For example, small business bankruptcies are at record lows versus where they would be in a normal year. And it has not been a normal year. My B also relates to the sanguine view on real interest rates. Even if inflation stays at 2.5% in the middle of the range for the next 5 years, real interest rates will likely rise. The budget assumes the effective interest rate on the public debt will drift lower (as legacy higher-interest-rate bonds mature). With the likely levelling-off in the global saving glut real rates will be subject to upward pressure. Higher US inflation will likely pressure the Fed to raise short rates and reverse QE over the next 5 years. Higher inflation results from interruptions to global supply chains: the bottling up of fiscal-driven demand and the unprecedented increased in the money supply. It is the first time in decades that central bank money is directly funding government spending and putting money into people?s pockets (as opposed to the interbank market). If US rates rise, rate pressures will transmit to Australia as it always does. It is unwise to place too much weight on interest rates remaining very low in real terms. If real rates rise above trend growth of say 2.5%, the primary deficit would then need to be cut for debt to stabilise.