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Author's Name: Saul Eslake
Date: Tue 12 Feb 2019

Saul Eslake

Saul Eslake

Saul Eslake worked as an economist in the Australian financial markets for more than 25 years, including as Chief Economist at McIntosh Securities (a stockbroking firm) in the late 1980s, Chief Economist (International) at National Mutual Funds Management in the early 1990s, as Chief Economist at the Australia & New Zealand Banking Group (ANZ) from 1995 to 2009, and as Chief Economist (Australia & New Zealand) for Bank of America Merrill Lynch from 2011 until June 2015.

He took a break from the financial markets between July 2009 and December 2011, during which time he worked part-time as Director of the Productivity Growth Program at the Grattan Institute, a ‘think tank’ affiliated with Melbourne University, and as a freelance writer, speaker and consultant: and it is to these roles that he has returned since leaving Bank of America Merrill Lynch in June 2015.

Saul is also a non-executive director of Hydro Tasmania, an energy business owned by the Tasmanian State Government.  He has previously been a Member of the Howard Government’s Foreign Affairs and Trade Policy Advisory Councils; of the Rudd and Gillard Government’s Long Term Tourism Strategy Steering Committee and National Housing Supply Council; and of the Australian Statistics Advisory Committee. He has also previously served as a Director of the Australian Housing and Urban Research Institute (1997-2004) and as Chairman of the Tasmanian Arts Advisory Board (2006-2011).

Saul has a first class honours degree in Economics from the University of Tasmania, and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. In December 2012 he was awarded an Honorary LlD degree by the University of Tasmania. He has also completed the Senior Executive Program at Columbia University’s Graduate School of Business in New York.

Subject Area Expertise

Analysis of current economic conditions and prospects, monetary and fiscal policy, interest rates and exchange rates, international capital flows, housing markets and policy, trade policy,  inter-governmental fiscal arrangements, tax policy.

Website

www.bettercallsaul.com.au


Responses (32)


Congestion pricing - November 2018

 

Agree

7


Banking Royal Commission and the Credit Crunch - October 2018

Poll 33

Proposition 1: "There is a significant risk that, either as a result of the findings and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry or as a result of the financial institutions' response to those findings, credit will become less readily available to Australian households or businesses."

Proposition 2: "Assuming credit becomes less readily available to Australian households or businesses, this will in turn have adverse consequences for the performance of the Australian economy."

 

1 - Agree

2 - Uncertain (neither agree nor disagree)

1 - There's no particular reason to think that credit should become less readily available to business as a result of anything that has (thus far) surfaced at, or because of, the Royal Commission. But in the area of mortgage lending, the Commission has called out the failure of lenders, in many instances, to properly assess and verify customers' expenses in determining their borrowing capacity, relying instead on 'benchmarks'. Assuming that lenders now become more diligent in this area (as the law requires), mortgage finance may well become less readily available to prospective borrowers whose actual expenditures are higher than the previously used benchmarks assume (all else being equal).

2 - The fact that mortgage finance may be a little less readily available is not necessarily a Bad Thing. No-one's interests are well served, in the long run, by imprudent borrowing or lending - so if there is less of that, then that's a Good Thing, even if it also means less upward pressure (or in the short term a bit more downward pressure) on property prices. And if less readily available credit does threaten to have more serious adverse consequences for the broader economy, the RBA is likely to take that into account in setting monetary policy.


Waste Policy - August 2018

Poll 32

"There are clear net benefits for Australians from (further) increasing the diversion of waste from Australian landfills."

 

Agree

7

The question as stated begs some others - such as, diverted from landfills to where? and what instrument(s) might be used to encourage diversion?  Prima facie, encouraging greater re-use and/or re-cycling (or less waste in production and packaging) sound like desirable policy goals; and using market mechanisms (pricing, taxes or subsidies) a sensible way of achieving those goals. But that wasn't what was asked.


Electric vehicles and road-use pricing - June 2018

Poll 30

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

 

Strongly agree

9

There are good public policy reasons for encouraging the take-up of electric cars. But public policy already provides in-built incentives for that. The use of electric cars doesn't attract the petrol excise and, as the question mentions, electric cars are subject to a higher threshold for the 'luxury' car tax (a bad tax, in my opinion). As electric cars increase their share of the total vehicle fleet, governments' ability to pay for road maintenance and construction from the proceeds of petrol excise (even though there is no strict hypothecation of that revenue) will decline. Road user charging is an ideal replacement as a source of revenue. But there's no obvious reason why electric vehicles should attract a lower road user charge (especially considering that electric vehicles domiciled in most states, other than Tasmania, will be operated by electricity generated by burning fossil fuels).


Will building more homes make housing cheaper? - May 2018

Poll 29

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

 

Agree

8

While I agree that a sustained increase in housing supply will, all else being equal, make housing cheaper than otherwise, all else is unlikely to be equal, and I have long favoured eliminating (or at least curtailing) the myriad ways in which the tax system, and other government policies, have had the effect of inflating demand (particularly from investors), as well as policies which would boost housing supply. In other words, it's not an "either-or" proposition.


Australian Federal Budget 2018 - Reduce government debt or provide tax cuts? - April 2018

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 - Strongly agree

2 - Uncertain (neither agree nor disagree)

1 - My answer is of course context-specific, rather than a general rule to be followed at all times and in all places. And it says nothing about how quickly or aggressively the debt-to-GDP ratio should be slowed (since that is also context-specific). It's also relevant that the Federal Government doesn't undertake much by way of infrastructure spending (so the usual arguments about it being appropriate for infrastructure spending to be partly funded by debt are less applicable here). But, in present circumstances and given the forecasts/projections the Government is using, returning the Budget to surplus and slowing the growth in debt as a pc of GDP should be a priority.

2 - Had some difficulty answering this question in a binary way because I would prioritise slowing the growth in debt to GDP ratio above cutting the corporate tax rate; but I am more ambivalent about the relative importance of (well targeted) personal income tax cuts vs putting a cap on debt growth.


US corporate tax cuts - March 2018

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)

6

It is possible that the US corporate tax cuts will have some impact on the flow of foreign investment into Australia - although I’d note that according to the IMF (at least) the component of the tax package which is expected to have the biggest impact on economic activity in the US is their “immediate expensing of investment”, which is not part of the corporate tax cut proposed by the Australian Government. Additionally, it’s not clear whether the type of investment most affected will be ‘investment’ in the sense usually used by economists, or ‘investment’ in the sense of, for example, foreign takeovers of existing companies. Finally, I’d emphasise that tax rates are but one of a number of factors which determine investment choices by companies.


Journalism as a public good - January 2018

Poll 25

Proposition 1: "The modern phenomena of information overload and social-media-fuelled 'fake news' bring into focus the value of quality journalism. Quality journalism has a public-good dimension that warrants public support."

Proposition 2: "The Australian government presently provides funding for the ABC and SBS, Australia's independent public broadcasters. The Australian government should increase its financial support of quality journalism."

 

1 - Strongly agree

2 - Uncertain (neither agree nor disagree)


Same sex marriage - November 2017

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 agree

9

There will be some short-term economic benefits from the backlog of wedding celebrations that can take place once the law is changed. But there will also be some long-term, small but nonetheless significant, benefits from improvements in mental health among the LGBTIQ community from the sense of affirmation and acceptance which this result will generate, and perhaps also from a lessening in discrimination against members of this community.


Robots, artificial intelligence and the 'future of work' - October 2017

Poll 23

Question A: "Holding labor market institutions and job training fixed, rising use of robots and artificial intelligence is likely to increase substantially the number of workers in Australia who are unemployed for long periods."

Question B: "Rising use of robots and artificial intelligence in Australia is likely to create benefits large enough that they could be used to compensate those workers who are substantially negatively affected for their lost wages."

 

A - Disagree

B - Agree

I'm not persuaded that robots and AI will have any greater impact on long-term unemployment than previous waves of technological change (which were often accompanied by similar predictions). I could more readily accept that these kinds of technological change could result in more widespread short-term unemployment. In answering these questions I have not interpreted the "job training fixed" stipulation too narrowly.


Public borrowing for infrastructure investment - September 2017

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"

 

Agree

9

This proposition has been strongly endorsed by the IMF and OECD (traditionally seen as bastions of 'fiscal orthodoxy') as well as the previous and current Governors of the RBA. All of them (and others) have also emphasized the importance of rigorous project selection and appropriate project governance (stipulations which have not always been followed in Australia, either historically or during the current episode of increased infrastructure spending). In other words, while I agree that governments could and should be borrowing more to fund infrastructure investment while interest rates are as low as they are now, while there are significant constraints on the capacity or willingness of the private sector to borrow (for anything other than real estate purchases) at those low interest rates, and while there remains ample spare capacity in the labour market and elsewhere, that doesn't mean that any infrastructure spending is a Good Thing.


The Finkel Review - August 2017

Poll 21

"The Finkel Review has recommended a mandatory certificate scheme that obliges electricity retailers to purchase a certain proportion of the electricity they sell from sources of electricity whose emission intensity is below a defined level. This is preferable to conventional approaches to the pricing of externalities, such as an emission tax or cap and trade scheme."

 

Disagree

7

I support a 'conventional' approach to the pricing of carbon emissions, ie a carbon tax or a cap-and-trade scheme. However, since it is clear that the current government has no appetite for introducing such an arrangement, the emissions intensity scheme proposed by Finkel is preferable to doing nothing at all.


Does privatisation of human services hurt outcomes? - July 2017

Poll 20

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

 

Disagree

6

The answer to this question depends importantly, I think, on the extent to which users of various 'human services' are allowed to choose between 'for profit', 'not for profit' and 'pure public service' providers. For example, the provision of school education by 'for profit' providers (as I would characterise most 'independent' schools, albeit that the profits are ploughed back into facilities, etc, rather than distributed to 'shareholders') is generally perceived by the 'clients' (parents who pay to send their children to those schools) as leading to superior 'client outcomes' (otherwise why would they pay for something they can get for close to 'free' of direct charge) and at (in most cases) less cost to government. Likewise most users of private hospitals and other private health facilities use them, despite their cost, because they perceive them as offering better 'client outcomes'. Hence my answer to the question as framed. However, I readily concede that where the provision of services is wholly transferred to private, 'for profit', providers, without there being any choice available to 'clients', the result can often be inferior service and higher costs - and this extends beyond 'human services'.


Gender diversity in the workplace - role of government? - June 2017

Poll 19

"The recent Parliamentary Inquiry into "Gender segregation in the workplace and its impact on women's economic equality" was asked to examine measures to encourage women?s participation in male-dominated occupations and industries. Although there is growing awareness of the productivity gains of gender diversity, the private market alone is unlikely to steer the Australian labour market toward gender equality in male-dominated industries. Breaking down gender segregation in the labour market can only be achieved with some degree of government intervention."

 

Agree

8


Australian Federal Budget 2017 - Outsourcing Economic Forecasting - May 2017

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

With no disrespect to the PBO, there's no reason to think they'd do a better job than Treasury has done of forecasting the major economic parameters required for framing the annual Federal Budget.


Energy shortages - reserving Australian gas - April 2017

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."

 

Agree

6

I think a 'domestic reservations' policy is very much a 'second best' compared with a much better designed domestic market combined with more appropriate resource rent taxation (or royalties) for onshore gas production, and more rational rules governing onshore gas production. But since we don't have any of those, the 'second best' may be the best available alternative, given the mounting risks regarding the availability and price of gas to domestic (household and business) gas consumers in eastern Australia.


CGT deductions - March 2017

Poll 16

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

 

Disagree

9

I disagree with the question as it has been framed here. It asks whether capital gains 'deductions' (not 'concessions' or 'exemptions') for 'housing' (not 'all assets, including housing') should be 'removed' (not 'reduced'). I think there is a legitimate case for some concessional treatment of capital gains in order to avoid taxing that component of capital gains which is purely attributable to inflation (which the 1985-1999 regime sought to do), though I think that concession should also be extended to interest income (and denied to interest expenses). And I don't think housing should be treated either preferentially or more harshly than other investment assets. If the question had been framed as "should capital gains be taxed less generously/concessionally/favourably relative to other forms of income" then my answer would have been "strongly agree" and I would have had a 10-level confidence in that opinion. If the question had been asked as "should interest expenses and other deductions against capital gains income be treated less generously than under current taxation laws" then again my answer would have been "strongly agree" with a 10-level confidence. However, these weren't the questions that were actually asked.


Economics teaching - micro before macro - February 2017

Poll 15

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

 

No opinion

9


Social costs of gambling - December 2016

Poll 14

"The social costs of gambling exceed the benefits (including consumer surplus from recreational gambling and tax revenue for governments)."

 

Agree

6


Part 1: 'Behavioural economics provides new and useful insights into individual behaviour.' Part 2: 'It is unethical for governments to use behavioural economics to

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

 

Agree

8


Immigration - November 2016

Poll 12

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

 

Agree

8


Behavioural economics - September 2016

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 - Agree

9

PART 2 - Agree

9


RBA economic growth targets - August 2016

Poll 10

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

 

Disagree

8


The Brexit - impact on UK citizens - July 2016

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


Spend on education or business tax cut - June 2016

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."

 

Uncertain (neither agree nor disagree)

7

I think there will be a small 'dividend' from cutting the company tax rate, although the 'dividend' IS small, and takes a long time to become evident - and neither the size of that 'dividend' nor the timing of it is enhanced by preferencing 'small' businesses over other ones (contrary to Coalition assertions, small business is not, in general, a major 'driver' of growth. There is also likely to be some 'dividend' from more spending on education, although I think we would get a larger 'payoff' from spending what we spend on education more efficiently and equitably, rather than simply spending more in the same way that we have spent what we've spent over the past decade.


Budget 2016-17 - Returning to surplus - May 2016

Poll 7

"The recently released 2016-17 Commonwealth Budget projects that the Australian Government's underlying cash balance will return to surplus by 2020?21*. Australian politicians should rebalance the budget with greater urgency."

 

Agree

6

I would be more comfortable with the currently foreshadowed level of deficits and debt (or indeed, even higher ones) if they had been financing a higher level of infrastructure investment (provided that the specific investments had passed rigorous and transparent evaluations). However they are largely financing 'recurrent' spending - and Australia shouldn't be running such large 'operating' deficits when economic growth is running (as it is) reasonably close to 'trend' and when the unemployment rate is falling. There's an element of "I wouldn't be starting from here" about this response, in the sense that my view is less along the lines of "there should have been more spending cuts or tax increases in this budget" than it is "the position should never have been allowed to reach where it is today".


China services boom for Australia? - April 2016

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."

 

Disagree

5

I am uncomfortable with the phrase "boom" to describe this. Australia certainly has the potential to benefit from rapid growth in Chinese demand for both personal and commercial services - but we are unlikely to be able to grow our capacity to meet that demand as rapidly as we did our capacity to meet Chinese demand for coal, iron ore and LNG: and we will face far more competition meeting that demand for services than we ever did in meeting the rapid growth in Chinese demand for iron ore. So while we should certainly gain economically from growth in Chinese services demand, it's unlikely to constitute a "boom" in the same sense as the mining boom was.


Efficiency of tax Government investments in major sporting events - February/March 2016

Poll 5

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

 

Disagree

7

Governments rarely make publicly available the basis for their assertions that investments in major sporting benefits generate net benefits, which makes it very difficult to believe that they do.


Efficiency of tax incentives - February 2016

Poll 4

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

 

Disagree

3


Bah Humbug Australia - December 2015

Poll 3

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

 

Strongly disagree

9

The presumption built into the question is the sort of thing that gives economists a bad reputation in the rest of the community. Gift-giving is partly about satisfying the desires of the giver: and for the recipient, part of the pleasure is knowing that the giver has thought about the recipient and (ideally) about what might give the recipient some pleasure. For many recipients, that is more satisfying than the gift itself. Moreover, recipients quite often don't have strong preferences as to what they might do with an unexpected cash windfall. A gift could be something that opens up a new experience, something that cash could never do.


Penalty Rates Reform - November 2015

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."

 

Agree

7