Saul Eslake

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

Increase the carbon price presently paid by big polluting facilities via the safeguard mechanism | Introduce an economy-wide cap and trade carbon price | Expedite building new transmission lines to connect renewable energy

As the International Monetary Fund notes in the latest issue of its Fiscal Monitor, "carbon pricing is a necessary component of the policy mix, but it is not sufficient", and "must be complemented by instruments aimed at correcting remaining market failures" ? which (of the options presented) represents (in my opinion) the best choice.

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"

Agree

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

6

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

2023

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"

Disagree

8

Fiscal policy is set to be tightened significantly over the next two years - albeit largely as a result of a combination of the expiry of time-limited spending programs (introduced in response to the pandemic) and ?bracket creep? - so it is hard to see Australian economic policy settings being the cause of ?protracted inflation? (although it?s possible that the policy settings of other large economies could result in higher inflation globally from which Australia might not be completely immune). I found the question on whether the RBA has used its tools ?effectively? to achieve the goals stipulated in its enabling Act a difficult one to answer. Self-evidently, the RBA failed to meet its inflation target for more than 5 years - but does that mean it failed to ?maintain the stability of the currency?? Equally self-evidently we haven?t had ?full employment? during the past five years - but is that the result, primarily or even in large measure, of a failure on the RBA?s part? Yes, of course the RBA could have lowered interest rates by more than it did over that period - but can we be sure that would have got inflation closer to the target, or employment closer to ?full employment? - rather than simply generating more rapid house price inflation (which seems to have been the main, albeit unintended, consequence of lowering interest rates to the levels which have prevailed since March last year)? Surely one can?t pin these shortcomings entirely on the RBA without having regard to what fiscal policy was doing at the same time (ie, being progressively tightened in pursuit of the goal of ?returning to surplus?. I think the RBA has been right to insist that it won?t raise the cash rate until (a) the labour market is sufficiently tight to (b) generate wage inflation that?s sufficiently rapid to (c) push ?underlying? price inflation sustainably into the 2-3% target range. Where I think they?ve erred is in being so dogmatic as to when those conditions might be satisfied - that is, by putting a date (2024) on it, rather than (as, I think, every other ?advanced? economy central bank has done) using vaguer language such as that ?it will take patience and time for these goals to be achieved?. I don?t think the effectiveness of the RBA?s responses to the economic consequences of the pandemic has been enhanced by putting a date on the timing of the first step towards ?normalisation? of monetary policy - something which no other central bank has thought it necessary to do. Rather, specifying a date has set up the potential for what can be portrayed in the media as some kind of ?contest of wills? between the RBA and the bond market which serves no useful purpose - and also created a possible ?PR? problem for the RBA in the event that it is ultimately necessary for it to start lifting the cash rate before 2024. I haven?t previously seen a compelling need for an ?independent review? of the RBA - but since many other countries have had one (or, alternatively, central banks such as the Fed an the ECB seem to have undertaken a fair bit of genuine introspection), such a review of the RBA would, provided it had sensible terms of reference and was conducted by credible people, at the very least do no harm.

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

Of course, there's no more likely to be an economy-wide carbon price than I am to step in thylacine droppings on my front lawn of a morning ? the views of such bastions of economic policy orthodoxy as the OECD and the IMF notwithstanding. So in the absence of the 'first best' policy, it's a choice as to what represents 'second best' ... and I am inclined to think that, of the three alternatives given here, the 'least worst' is direct action policies to subsidize emission reductions in the short-term ? but support for emissions-reducing technologies will probably do more good over the longer term: we might need to do both in order to meet 2030 as well as 2050 goals.

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

The overall budget strategy - of providing further stimulus to support the recovery from last year's recession, with a view to pushing unemployment down to, and sustaining at, levels which we haven't seen for any length of time since the first half of the 1970s - is the right one (in my view). It means that fiscal and monetary policy will be working in harmony towards a common goal, rather than at 'cross purposes' as they have done for most of the past two decades - which in turn means that the chances of arriving at that common goal are much greater than they would have been otherwise. My mark falls short of an "A" however because in my view many of the specific measures in the budget fall short of the ideal. In particular there is too much 'genuflection' at the altar of 'small business' - in the mistaken and unfounded belief that it is the 'engine room of the economy' and if only they are allowed (legitimately) to pay less tax on any given amount of income than wage-earners or larger businesses (something which a larger percentage of small businesses seek to do illegitimately than of larger businesses) then everything will be 'peachy' with regard to employment creation, innovation and investment. And most of the housing-related measures fail to learn the obvious lessons from either our own history or from the experience in the US before the GFC with ultra-high loan to valuation ratio mortgages.

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

Actually, I think the age pension should be indexed in line with the CPI (or, even better, with the pensioner cost of living index which the ABS now publishes), rather than with male average earnings. And I think JobSeeker should be fixed as a percentage of the age pension (so that this issue never arises again), but those weren't listed among the options.

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 recovery from the downturn induced by Covid-19 and the measures required to contain it will be slow, vulnerable to setbacks, and in the absence of ongoing support from both monetary and fiscal policy, accompanied by persistent high levels of unemployment, with long-term adverse consequences for both the unemployed themselves and for the broader Australian community.

Poll 39

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

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

Disagree

5

I would understand if the Fair Work Commission were to decide to defer a decision as to the amount of any increase in the minimum wage until the economic outlook, in particular for the labour market, becomes clearer than it is today - which should be by early October. But that�s different from suggesting that the minimum wage should be frozen at its current level. I think a consumer price index-linked adjustment would be appropriate: I don�t support a large increase in real terms. In the current and foreseeable near-term environment it would probably be quite difficult to separate the impact on employment of an adjustment to the minimum wage from all the other factors which will be affecting the labour market.

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"

Agree

7

To date, at least, I think the answer to the question is an unambiguous 'yes', unless you are willing to discount the value assigned to the lives of older people (who would bear the brunt of the higher death toll that would result from R being greater than 1 for an extended period. However, the longer that restrictions had remained in place, the less unambiguous the answer would have become. Fortunately, however, we have already begun to relax restrictions. (Incidentally, I can't help but wonder why we have never asked this question of the cost and benefits of 'counter-terrorism' measures.

Poll 34

"In general, using more congestion charges in crowded transportation networks — such as higher tolls during peak travel times in cities, and peak fees for airplane takeoff and landing slots — and using the proceeds to lower other taxes would make citizens on average better off."

Agree

7

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.

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.

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).

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.

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.

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)

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.

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.

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.

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.

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'.

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.

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

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

Poll 14

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

Agree

6

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.

Poll 12

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

Agree

8

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.

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

Agree

8

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

Poll 10

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

Disagree

8

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."

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.

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".

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.

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.

Poll 4

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

Disagree

3

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.

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