Warwick McKibbin AO

Poll 65

Panellists are unanimous in believing Australia’s housing market is in crisis.

Offered a choice of 14 measures identified by the Economic Society of Australia as likely to restrain prices for buyers and renters, none of the 49 leading economists polled picked: “do nothing, the market will determine appropriate prices”.

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Rental Affordability

Ease planning restrictions, Replace stamp duty with a broadly based land tax that includes the family homes

Poll 64

Panelists were asked to comment on two questions: 

Is the budget likely to achieve its aim of getting inflation back within the RBA target band by the end of this year and back to 2.75% by mid next year?

And

On May 14, the government delivered a budget designed, in the Treasurer's words, to "focus on fighting inflation in the near term and then growth in the medium term " - 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/

NO The technical measurement of inflation might come within the band, but the budget is maintaining excess demand in the economy, and thus, underlying inflation will likely be above the band. The Reserve Bank will see through this and likely raise interest rates to where they should be.

D

The Australian economy's main problems are the lack of productivity growth and the need to deal with large structural changes due to the energy transition, the surge in artificial intelligence, a possible loss of the terms of trade surge, and global geopolitical uncertainty. Budget policy should not focus on whether inflation will be 2.9% or 3.1% in December 2025. The real problems facing the economy are orders of magnitude more important than the political problems the government faces leading up to the next election. The budget contains way too much spending and distortionary taxation, which can only be sustained if the terms of trade boom continue. Macroeconomic resilience is more important than production network resilience, yet there is no focus on it. I didn't hear productivity mentioned in the Treasurer's speech. What should have been done, given the scale of the problems the Australian people face, was first to focus on the market failures and/or government failures that have prevented the economy from adapting sufficiently to the major global risks that are obvious. The policies should then be focused on fixing the problems at the lowest possible cost of adjustment. There is clearly a role for the government in first fixing its own distortionary policies (such as subsidies to fossil fuels) and then addressing problems when markets fail. The most significant hurdle to overcome is the lack of bipartisan political consensus on crucial issues, which is stifling private investment. It is imperative to prioritise a collaborative approach, engaging with the opposition to develop a bipartisan strategy for tackling these major issues. Any other approach would be a suboptimal solution. Without any consensus on overall policy, most budget policies will be reversed when there is a change of government. This reversal will be a waste of taxpayers' money and delay major adjustments. In the absence of consensus, the budget fails to capitalise on potential opportunities. It overlooks the potential benefits of substantial tax reform, labour market reforms to enhance flexibility, and major investments in education to equip future workers to adapt to rapidly changing circumstances. These reforms could have a significant positive impact on the Australian economy. I would give the budget an F, but the budget could have been much worse given the role of corporate lobbyists, union officials, and foreign intellectuals in promoting "a new exciting role for government" in setting the government's agenda.

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)"

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I don't support any of the listed approaches. There should be a general reduction in barriers for new emerging firms to prosper. These barriers include labor market reform and lower tax rates generally to raise productivity across the economy. A much improves access to housing costs through removing state and local regulations that enable a large rise in housing supply that lowers the cost of housing for human capital to stay in Australia and overseas human capital to relocate in Australia. Picking technology winners has a high risk of failure at the taxpayers' expense. If there are any support to firms to correct a market failure, it should be in the form in cash flow contingent loans so successful firms will pay back a proportion of the profits. The highest payoffs to Australia are likely to be in sectors that aren't being distorted by the US policies.

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

Introduce an economy-wide cap and trade carbon price | Expedite investment in large battery storage | Expedite building new transmission lines to connect renewable energy

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%.

relaxing industrial relations regulation to allow for greater "flexibility" (as defined by employers), reducing out-of-pocket costs of childcare for families, reducing taxes and regulations facing businesses

4.25

The NAIRU is a reduced form relationship between inflation and unemployment. It is not a constant relationship but provides one potential indicator of inflationary pressure. Shifts in foreign or domestic demand, supply, or structural shocks can move the NAIRU. In a globally integrated world, inflation can change without a change in domestic labour market pressures. Wages did not cause the current rise in Australian inflation, and the ongoing reduction in Australian inflation due to global trends is unlikely to be caused by pressures in the Australian labour market.

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 did not provide concrete reform on either the medium term spending pressures or the distortions in the revenue system. The size of the deficit is not a good measure of fiscal quality. The improvement in the short term fiscal position was mostly due to a revenue surge outside the decisions of government. The good news in that much of the surge in revenue was saved rather than spent. INFLATION COMMENTS: While not adding to inflationary pressures the budget doesn?t put downward pressure on inflationary pressures, although it will likely temporarily reduces measured inflation.

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: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back superannuation tax concessions Broaden the set of goods and services captured by the GST Equity picks: Introduce or increase land taxes (possibly with some reduction of stamp duty) Tax windfall profits Wind back superannuation tax concessions

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

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

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

Broader reforms to promote productivity Education and skills Workforce participation

Broader reforms to promote productivity The key to raising wages and creating high quality jobs is to raise productivity and that requires a focus on tax reform and clear policies to support the climate transition.

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

Reserve a portion of gas and other commodities for domestic use Raise productivity growth

3%

The tolerable rate of inflation in the question should be qualified by the existing and expected rate of GDP growth. If the economy is in recession, then a higher rate of inflation for a period could be tolerated as long as it is made clear that the RBA has a long-term inflation target. A better approach would be a nominal demand target (such as gross national expenditure) of 5-6% growth, so that if output growth is weak, it is clear that a period of higher inflation is acceptable as long as the nominal growth target is achieved. Once real growth returns to trend then inflation will fall back into the long-term target range if the nominal growth target is achieved.

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

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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"

Disagree

7

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"

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8

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"

Agree

7

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

To achieve net zero emissions Australia will need to follow a portfolio of policies that change the incentive to emit greenhouse gases. As outlined in Jotzo F. and W.J. McKibbin (2021) ?Low Hanging Fruit in Australia?s Climate Policy? in Caselli, f., A. Ludwig, and R. van der Ploeg(eds) ?No Brainers and Low Hanging Fruit in National Climate Policy? pp 93-104. CEPR Press, London: "six areas where climate policy in Australia could achieve emissions reductions at low cost: pricing emissions in industry through a modification and broadening of the existing Safeguards Mechanism; investment in assisting the transformation of the electricity grid to very high shares of renewables; a mixture of innovation support, and targeted incentives and regulatory standards in specific sectors and activities; an effective green infrastructure program to stimulate demand and raise productivity in the medium term; a community focused structural adjustment fund that would enable disproportionately impacted communities to adapt reality of the global transition to net-zero emissions by 2050; and removing impediments to the emergence of new renewable energy-based export industries to take the place of coal and gas exports". Key to the carbon pricing is a credible rising price on carbon (preferably through a Climate Asset and Liability Mechanism rather than a carbon tax ) (see Academy of Social Sciences in Australia (2020) ?Efficient, Effective and Fair: Climate Policy in Australia?, Discussion Paper June). https://socialsciences.org.au/publications/efficient-effective-and-fair-discussion-paper/ ). Also important is a large scale green infrastructure program ( see Jaumotte, F., Liu, W. & McKibbin, W. J. (2021). Mitigating Climate Change: Growth-friendly Policies to Achieve Net Zero Emissions by 2050. IMF Working paper wp2021195 https://www.imf.org/en/Publications/WP/Issues/2021/07/23/Mitigating-Climate-Change-Growth-Friendly-Policies-to-Achieve-Net-Zero-Emissions-by-2050-462136

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"

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

While individuals currently have the right not to be vaccinated, they do not have the right to infect others. If a person does not want to be vaccinated (apart from because of legitimate health issues) then they should be excluded from any social interaction that will spread the virus. If high levels of vaccination are not achieved then there is a case for cash incentives that are income contingent.

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"

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Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

The government spending should be on high return infrastructure investment.

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"

Remove the luxury car tax from all-electric cars, Subsidise public charging points for electric cars

8

If the generation of electricity is not shifted quickly to low carbon emissions then we should not move to electric cars because emissions will rise as we drive with coal rather than oil. I assume the intention of the question is prefaces with the statement "If Australia's electricity system decarbonizes '.... if the question is actually as stated then given current policies I would answer no to every question.

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

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C

The Australian federal government budget should have been focused on three broad goals. First, to tackle the covid-19 pandemic by maintaining income flows in the economy and encouraging investment in vaccine production and quarantine facilities. Maintaining economic activity and investing in reopening the economy are critical as the Australian economy recovers from the pandemic. Secondly, to reverse the decline in productivity growth that Australia has been experiencing over recent decades to create the conditions for strong economic growth in the future. Thirdly, to lay the groundwork to respond to the challenge of climate change, as the global community is likely to take serious action that has long-term implications for the Australian economy. The demand stimulus in the budget is significant. This stimulus is funded by increases in borrowing which is not necessarily a bad thing. Still, it does become problematic if borrowing is used to finance consumption rather than investment and if global interest rates rise. That part of the spending that focussed on infrastructure is positive as long as that spending is independently assessed as having a high economic return. However, most of that infrastructure should have been green infrastructure spending to support the adjustment away from fossil fuels to a low carbon economy. A key ingredient in productivity growth is an investment in human capital, which is achieved through funding university research. With the collapse of foreign student income, which was subsidizing university research, the university sector is vulnerable. This problem was substantially ignored in the budget. University funding has been cut in nominal terms over the coming years. The world is likely to be taking significant action on climate change which will substantially impact Australia?s fossil fuel exports and the future structure of the Australian economy. These external forces are more important than any particular domestic action on climate change but are ignored in the budget. This budget is a lost opportunity for enhancing innovation and productivity growth and addressing climate change. The budget relies on assumptions that hopefully will be proven correct. Still, if the premises are wrong, it leaves Australia vulnerable in a highly uncertain world.

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 scale of the deficit was appropriate given the needed response of fiscal policy to the COVID-19 recession (I would give an A for scale). The composition could have been much better designed. There was an opportunity to invest in green infrastructure as part of a fiscal response and a climate/energy policy response that would have longer-term economic and environmental payoffs. For spending support, transfers to low income households rather than income tax cuts would have given a bigger bang for the buck. Greater support of childcare would support incomes and labour supply. Also a greater use of income contingent loans for households and revenue contingent loans for small businesses would have given a much bigger stimulus for less long term fiscal deterioration. Job keeper should have been universally applied but through a revenue contingent loan.

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

My answers are contingent on the current state of the economic slowdown. Raising JobSeeker helps under current circumstances. The dilemma is to balance the tradeoff between maintaining incentives for the unemployed to find work with the need to have minimum livable income during a severe economic slowdown. Indexing to consumer price index maintains the living standard, while indexing to wages maintains a living standard relative to society as a whole. During a pandemic it is important to raise support for the unemployed. My answers would be different if the Australian economy was close to full employment.

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 

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, More funding for education and training, Increasing subsidies for child care

It is difficult to choose between the multiple choice questions because how they are funded and how the policies are designed is critical. For example funding childcare through income contingent loans rather than subsidies is important but it is not listed. I don't support blanket subsidies for childcare but I have selected half of the choice (i.e. a policy for childcare). Income support payments through income and revenue contingent loans to households and small business is important but it is not listed.

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 nature of the fiscal support matters. I assume the question is focused on a set of good policy options rather than wasteful and distorting policies. I also assume that the support is temporary until there is a recovery.

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

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"

Strongly agree

9

The balance between costs and benefits depends very much on the way in which social distancing is implemented and what other policies are implemented as well. There is clear evidence that in countries where R>1 there has been large economic and human costs so there are clear benefits from containing the pandemic. Social distancing alone will probably not be effective unless there is a strong and transparent system of testing for COVID-19, tracing contacts of anyone who tests positive and quickly isolating cases.

Poll 31

Proposition 1: "The best economic policy instrument available to policy makers seeking to address obesity and related health issues in Australia is the introduction of a tax on sugar sweetened beverages (SSBs)."

Proposition 2: "The health and non-health benefits from a tax on SSBs are likely to outweigh the possible costs felt elsewhere in the economy."

1 - Disagree

2 - Uncertain (neither agree nor disagree)

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."

Strongly disagree

9

I assume that the question is about a Clean Energy Standard (CES) in electricity generation versus an economy wide tax or cap and trade system. An economy wide approach will get the same emissions reductions at a much lower price or much larger reductions in emissions at the same price. If the question is actually about A CES in electricity versus and cap and trade in electricity then our research on the US shows that there is not much difference in the cost or effectiveness. This is likely true in Australia as well.

Poll 15

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

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

7

The problem is not with Treasury's ability to forecast. A range of forecasts should be used to make it clear how uncertain the future projections are. A mix of Treasury and external forecasts would provide a more accurate picture of risks in the budget outlays and revenue assumptions.

Poll 13

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

Strongly agree

9

"Superior" is the key word. She may not be a good President for Australia's interests especially if the Democrats in the Congress swing her even further to the left particularly in damaging trade policy and further threatening the fragile global economy.

Poll 10

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

Strongly agree

10

There is a large theoretical and empirical literature going back over five decades that supports this proposition. The problem is that the best monetary regime depends on the nature of the economic shocks impacting an economy. Thus no monetary regime is always best for all shocks. However nominal GDP targeting has been found to be best in most cases and particularly relative to inflation targeting when responding to supply shocks (i.e. productivity shocks) and changes in country risk. More information here.

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 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."

Strongly agree

9

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."

Strongly agree

10

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)

6

The question is ambiguous. Does the "gain to the city or region" include the cost to the taxpayers who don't live in the city or region? It could be that economic output of a city rises but the tax payers in other parts of the State pay higher taxes which leads to lower overall utility. It also depends very much on how the event is supported and how it is funded. It also depends on the nature of capital investments that might be made as part of the hosting. Are capital investments sustainable after the event or do they become white elephants like the Olympic stadiums in Greece?. Does "usually" mean the number of events that lead to gain or the total value of events that lead to gain?

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