Kevin Davis

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: B - Keeping inflationary pressures in check: C

B

OVERALL COMMENTS: The budget strikes a reasonable balance between relief, repair and restraint, and thus will be criticised by all those who want more of one or other of those objectives. Personally I think that more could/should have been done on the tax front: abolishing the Stage 3 tax cuts; reforming the tax system (including negative gearing), higher resources rent tax; etc. While most of this would have minimal consequences for this year's budget outcome, the positive consequences for future revenue could have allowed more to be done in the 'relief' area. The budget loses marks in terms of not doing enough on the 'repair' of the environment. INFLATION COMMENTS: I suspect that the budget will exert a mild contractionary effect on economic demand and employment and thus may be anti-inflationary via those mechanisms. But to the extent that much of inflation is reflecting supply side influences, the budget seems unlikely to have much impact in that regard. Overall, I would expect that the inflation outcome will be primarily determined by factors other this budget.

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

Green jobs Workforce participation Education and skills

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

Wind back government spending Increase income taxes with revenue used to reduce cost of services

3.5%

Substantial increases in interest rates by the RBA do not seem to be an appropriate policy for dealing with current problems. Inflation is conventionally defined as an ongoing increase in prices. Whether that is what is happening at the moment, rather than a one-off, possibly short term increase in some prices due to supply issues etc is unclear. Claimed labour shortages, if not a reflection of attempts to maintain profits involving low wage levels, do however give some credibility to demand factors arising, inter alia, from high government spending. If inflation is caused by mainly supply induced short term price increases, it is far from clear that attempting to choke demand by interest rate increases is an appropriate policy. If it does choke demand, the employment consequences are undesirable (shouldn?t we be celebrating low unemployment rates?) and it is far from clear that the main effect is on demand for real goods and services rather than on financial asset prices (which may eventually affect real investment and demand via wealth effects - but these are channels of transmission in which I have limited faith). One consequence of a period of consumer price (and hopefully) corresponding wage increases which tends to get neglected, is that it may be a better way of solving housing unaffordability than relying on house prices falling. House prices are high relative to wages, so solutions to that problem could be either house prices falling or wages increasing (or some mix). Unfortunately if increases in wages and prices are reflected in higher interest rates, due to policy reactions or market expectations of inflation, the structure of mortgages will lead to large increases in repayments ? with major impact upon relatively recent, high loan/valuation, borrowers. So solving housing affordability by increasing the denominator (nominal incomes) rather than reducing the numerator (house prices) may be even more painful for such borrowers (who may move into negative equity when house prices fall, but can maintain repayments). But the effect of higher nominal incomes (with stagnant house prices), even if not involving higher real incomes, should be recognised as one way of reducing housing unaffordability. A risk is that high inflation expectations may develop, and RBA interest rate increases could be seen as a way of attempting to prevent this by signalling determination to prevent such an occurrence. But if such expectations are developing, this should be reflected in higher longer term nominal interest rates. Looking at the structure of government bond yields there has been some increase in longer term rates relative to short term rates, but well below what might indicate a substantive increase in inflation expectations.

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

.

Tax reform is needed to remove distortions to investment and output decisions and to improve equity and to grow the tax base for eventually reducing the budget deficit. But it will be difficult to implement sensible changes and almost the kiss of death to promote such things in electioneering. Planned cuts to higher personal income tax rates should be scrapped on equity grounds. Superannuation tax arrangements should be altered - change the 15% rate to a rebate of 15% on the individual's personal tax rate, and impose tax on super earnings in retirement. Recognise that dividend imputation and low/zero tax rates and rebates for super funds/charities as major equity investors means that the ultimate tax revenue from corporate income is cannibalised. Extend GST to banks - it is possible to do (maybe imperfectly, but better than excluding them). Reduce/remove capital gains tax concessions etc. Replace state stamp duties with annual property tax. Consider wealth/inheritance taxes. The list of possible improvements is vast. The housing crisis is real and an important social problem. Our tax system which gives massive tax concessions to investment in owner-occupier and investment properties is one source of willingness to pay high prices, and inflating the overall level of house prices and rents. But any attempt to change these things and depress house prices would lead to major problems for relatively recent purchasers! Supply is also important, and more government/public housing is warranted. Making a sensible national contribution to reducing global climate change via carbon emissions reduction (carbon tax etc) and other measures to reduce environmental degradation should not be an issue which divides political parties, but...

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

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

8

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"

.

7

2022

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"

Uncertain

10

The prospect of above target inflation depends on developments in the real economy as it emerges from the Covid shutdown. If a strong recovery and no change in policy settings then it could happen, but current monetary policy settings more likely to be fuelling asset price inflation rather than real sector inflation, and ?Covid-based automatic stabilisers? of fiscal policy settings will moderate any fiscal stimulus (particularly as current government likely to revert to aversion to deficits etc). Re interest rates, private sector demand for finance and upward pressure on longer term rates likely to lead RBA cash rate up, together with need to moderate asset (eg housing) price inflation.

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);Lotteries with cash or prizes for the vaccinated;Cash incentives for vaccination;National advertising campaigns

One issue is how to ?frame? any cash incentives (including lotteries), particularly given Morrison?s response to Labour that offering cash is insulting etc. But there is a social benefit from vaccinations, like an externality, in the form of lower health costs etc so providing an incentive has merit. Possibly a scheme like a temporary partial rebate of the Medibank levy, which is directly tied to vaccination would emphasise that link ? but since the reward from that is delayed (till end of year tax time) it would probably be less effective than immediate cash in the pocket. An issue with vaccine passports, which have some merit is the question of who determines what settings they are required for - government or a private operator of a facility.

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"

Subsidise only the purchase of non-luxury all-electric cars, Subsidise public charging points for electric cars

8

Poll 43

"On 6 October, the Government delivered a budget designed, in the Treasurer's words, to 'rebuild our economy and create jobs'.  What grade would you give the budget given the objective?  A, B, C, D, E, F"

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

C

The willingness of a conservative government to adopt needed large deficit spending, at variance with their ideology, at the current time is a plus. But tax cuts to the better-off employed is not the best way of achieving desired outcomes. The carry-back of losses, particularly combined with immediate write-off of capital expenditures could have a significant effect (since such expenditures now can create current losses and release rebates of tax paid on past profits). But a concern must be with how much of such business expenditures will leak to imports. How quickly (if ever) much of the announced direct government expenditure will occur is another concern. My main criticism is with the lack of focus on appropriate distributional objectives and lasting changes to improve the economic and social conditions of the less sell-off.

Poll 44

"Ahead of a decision about any permanent increase expected early next year, The Conversation and the Economic Society of Australia asked 45 of Australia’s leading economists where they thought JobSeeker should settle."

Be indexed in line with wages

Poll 42 

"The October budget will see the government announce additional policies to support recovery.  Please nominate the four programs you think would be the most effective (for an intervention of a given size) over the next two years"

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

Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Incentives for renewable energy

It is difficult to judge the options solely on an economic stimulus basis - they have very different distributional effects. The problem with personal tax cuts is that they are likely to be structured in a way that provides most gains to those less in need (higher income groups) and with less impact on expenditures. Likewise, corporate tax cut arguments ignore the effect of dividend imputation in offsetting company tax - except for foreign companies/investors - so there is limited likely stimulus. Infrastructure expenditure could have merit if it was labour intensive projects - but that seems unlikely,

Poll 41

"The legislated increases in compulsory super contributions, which are set to climb from 9.5% of wages to 12% over the next five years should...."

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

Be deferred

7

Longer term, under our current retirement incomes arrangements, an increase to 12% makes sense to ultimately reduce the call on budget finances for the age pension. In the midst of an economic crisis, deferral makes sense.

Poll 40

"Governments should provide ongoing fiscal support to boost aggregate demand during the economic crisis and recovery, even if it means a substantial increase in public debt"

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

Strongly agree

9

The size of the national debt (if in AUD) should only become a concern if the interest obligations on the debt get to such a point that their payment (and principal repayments) threaten the future ability of the government to make expenditures to provide a desired level of government services.

Poll 39

"A freeze in the minimum wage will support Australia's economic recovery"

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

Strongly disagree

8

I am not aware of any compelling evidence to support this proposition. It ignores the effect of higher wages on consumption and aggregate demand. While higher labour costs might contribute to higher prices - that should be a minor concern at a time when inflation is below the target range. And this ignores any distributional considerations!

Poll 38

"The benefits to Australian society of maintaining social distancing measures sufficient to keep R<1 for COVID-19 are likely to exceed the costs"

Uncertain

5

It depends very much on long such measures are needed and the impact they have on the viability of different types of businesses.

Poll 27

"The recent US corporate tax cuts will have no impact on investments in and capital flows into Australia."

Uncertain (neither agree nor disagree)

5

With a floating exchange rate, the aggregate capital inflow will only change if the current account balance changes. To the extent that the supply curve of foreign capital shifts inward due to foreign tax cuts then some AUD depreciation could occur improving the current account balance and thus implying less foreign capital inflow in equilibrium.

Poll 28

Proposition 1: "Slowing the growth in the debt to GDP ratio should be a priority for Australian governments."

Proposition 2: "Slowing the growth in the debt to GDP ratio is a higher priority than income or corporate tax cuts."

1 - Agree

2 - Agree

1 - Not always a priority it depends on optimal value and current circumstances.

2 -

Poll 29

"A sustained increase in the number of new homes constructed each year, all else equal, will make housing cheaper than otherwise."

Agree

9

given the cet par assumption and "housing cheaper than otherwise" assertion its hard to disagree - but that doesn't rule out that other factors may have been responsible for past increase in housing prices

Poll 30

"Pricing of road-use for electric vehicles should be the same as fossil fuel-powered vehicles."

Disagree

6

Money is fungible, so even though the fuel levy is "linked" to road funding for public perception reasons I don't see it really in that light, rather than as just another source of government tax revenue. To the extent that there are social benefits from electric vehicles, then a lower overall tax rate for them is probably warranted - but how that can be efficiently and effectively designed is another matter.

Poll 26

"The wages and conditions of Australian workers providing services in sectors affected by the rapid growth of digital on-demand subcontracting platforms will, on average, be expected to fall without further government intervention."

Agree

7

I'm assuming the question refers to relative wages (versus rest of economy), and answer is premised on elastic supply of labour to that sector reflecting relatively low specialised skill requirements. But response could be expected to vary depending on whether the new business models create new demand for the products/services.

Poll 24

"Assuming that the law will be changed to allow same-sex couples to marry in Australia, this will generate net economic benefits for the nation as a whole over the next 10 years."

Strongly disagree

7

There may be more expenditure on weddings etc., but no obvious reason that this would not be at the expense of other consumption expenditures.

Poll 22

"As interest rates are at low levels by historical standards, federal and state governments, despite their public debt levels, should be borrowing more than they currently are to invest in infrastructure"

Strongly agree

8

Provided that public sector decision making is sufficiently robust to ensure that NPV of projects adopted is positive, then strongly agree. Not confident about that caveat being met!

Poll 20

"For-profit provision of human services like health and education leads to poor client outcomes and high costs to government."

Agree

8

The problem of asymmetric information is prevalent in these areas such that users have limited ability to assess quality and value and can be taken advantage of by unscrupulous operators. Short term self-interest of providers, unless reputational concerns are paramount, and unless accompanied by a commitment to fairness, can lead to problems when for-profit operators actions are not regulated appropriately or subject to consumer-oriented competitors which may provide a benchmark for assessing quality and value. Not-for-profits (mutuals, "charitable" entities or governments) can play such a role and have been important in both health and eduction.

Poll 16

"Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices."

Strongly agree

10

The issue should not be restricted to houses - in fact to do so would probably introduce other types of distortions. Rather, a return to full taxation of real capital gains would make sense. The practical problem is whether/how past unrealised capital gains could/should be grandfathered.

Poll 15

"It is more effective to teach an introductory course in micro-economics first before an introductory course in macro-economics."

No opinion

10

Poll 18

"Given the Commonwealth Treasury?s ongoing difficulty in making accurate forecasts of some of the key economic variables underpinning the Budget ? in particular nominal GDP growth ? the Government should ?outsource? the economic forecasts used in framing the Budget to an independent agency (such as the Parliamentary Budget Office), as now happens in the United Kingdom."

Disagree

6

I'm not familiar with the evidence on whether Treasury forecasts are better or worse than others, and if they are worse the prior question to ask is why - is it inherent biases induced by need to present particular acceptable budget forecasts, lack of adequate resourcing, or use of incorrect models etc.

Poll 13

"Hillary Clinton is likely to be the superior US presidential candidate for the Australian economy and for Australia."

Strongly agree

10

Poll 12

'The total benefit of current levels* of migration to Australia will outweigh the total costs to Australia's economy'.

Uncertain (neither agree nor disagree)

5

Historically, this issue was often discussed in terms of effects on aggregate demand and supply, employment/unemployment consequences and skill needs. I think currently the socio-demographic issues probably make this question of second order of importance currently, and it depends partly on the composition of the migrant intake. If the total benefits in the question are defined to include those accruing to migrants, I would anticipate that there are very substantive benefits if the composition was skewed more towards refugees. That would, I think, be much preferable to those getting residency status via the (in my view) silly, unjustified Significant Investor Visa (or other such) programs. Important influences on economic costs/benefits include migrant destinations and capacity of capital cities to absorb and provide infrastructure, and also effects of migrant age distribution on affecting rate of ageing of overall population.

Poll 17

"In response to energy shortages around Australia, government policies requiring gas producers to reserve some production for domestic consumption are a good way to ensure that Australian consumers have access to sufficient gas supplies while still allowing for gas exports."

Disagree

6

The total benefit of current levels* of migration to Australia will outweigh the total costs to Australia's economy.

Strongly agree

10

Poll 11

Part 1: 'Behavioural economics provides new and useful insights into individual behaviour.'

Part 2: 'It is unethical for governments to use behavioural economics to "nudge" citizens.'

PART 1 - Strongly disagree

10

PART 2 - Strongly disagree

10

Poll 10

"The Reserve Bank of Australia should be tasked with targeting nominal economic growth rather than inflation."

Strongly disagree

8

Nominal income growth is the product of inflation rate and real output growth. Higher values of one are bad and of the other are good. So why combine in one "target' rate range - where the policy response should depend on the mix.

Poll 9

"Assuming it is implemented, Brexit will deliver net economic benefits, on average, to UK citizens within its first 5 years."

Strongly disagree

9

Poll 8

"Australia will receive a bigger economic growth dividend in the long-run by spending on education than offering an equivalent amount of money on a tax cut to business."

Strongly agree

8

Apart from the Keynesian perspective on relative size of multipliers (which is short term anyway), the need for improved human capital is a major investment requirement which education spending helps, as also it helps potential labour force flexibility to cope with changing economy. Also benefits of corporate tax cuts under an imputation tax system go primarily to foreign owned firms.

Poll 6

"As the Chinese economy makes its transition from investment-led to consumption led growth, the Australian service sector which currently accounts for around 20% of total exports, will produce a second 'Chinese economic windfall' for Australians."

Uncertain (neither agree nor disagree)

6

Poll 5

"Government investments in major sporting events usually generate net benefits for the city or region where the investment is made."

Uncertain (neither agree nor disagree)

9

It depends - a single event creates capacity constraint issues and while some temporary employment, owners of accommodation etc who get higher rents are not necessarily locals. The Centre for South Australian Economic Studies did a multifaceted review of the Grand Prix when it was in Adelaide and could not find evidence of net benefits (most significant effect was the "hoon effect" - more speeding violations. There is rarely adequate transparent cost-benefit analysis showing real government subsidy and non-market costs to locals. However, a portfolio of continuing major events may provide benefit via generating consistent increased tourist flow etc generating sustained employment and increased capacity opportunities.

Poll 4

"New tax incentives for investments in technology and innovation businesses and start-ups are likely to be inefficient."

Agree

5

Very hard to give a confident response without full details of actual conditions. Past experience with film investment tax concession schemes (although somewhat different) suggests more funding, but of lower quality ventures.

Poll 3

"Giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash."

Disagree

8

Statement assumes economic rationality and no consideration given to interpersonal relations and reactions to gift-giving nor behavioural biases.

Poll 2

"Aligning Sunday penalty rates for hospitality, entertainment and retailing industries with the current levels for Saturday, as proposed in the Productivity Commission's draft report, will lead to more employment and greater availability of services in these industries on Sundays."

Strongly agree

9

There is a problem with what is actually meant by penalty rates. Is it the rate for "overtime" eg someone doing more than 35 hours per week with the overtime being on sunday, or simply a rate paid to someone who works on sunday regardless of whether they work at any other time of the week. If the latter, it is not clear why sunday rates should differ from other days - but arguably should differ (given social views on "weekend") if weekly employment contract offered by employer requires some part of work to be on weekend.