Nigel Stapledon

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

Workforce participation Broader reforms to promote productivity

Broader reforms to promote productivity The link between productivity and real incomes/wages is pretty clear. The government and the Fair Work Commission cannot defy gravity and lift real wages if productivity remains stagnant. The one caveat to that is that when Australia receives high prices for its resource exports, the world gifts us higher incomes for a period as they did during the resources boom, then follows a period in which real wages either fall or grow less slowly. Understanding why real incomes rise/fall perhaps helps us avoid "bad ideas" which appear attractive but will hurt productivity - and (rebadged) bad ideas touted as "reform" have a habit of being resurrected at these summits. How do measures to rebuild manufacturing capability (read subsidies) not hurt productivity and real wages? Subsidising some vital areas such as defence-related industries (but not submarines) can be justified, but let's be clear on the cost-benefit (case by case) of going down this track. Certainly and surely history tells us no case can be made for subsidies of things like building electric vehicles, or solar panels for that matter. On workforce participation, let's look at the disincentives to people working. We love our system of means testing income support (Number one in the world, or close to it) but generally fail to recognise the disincentives (to work or continuing to work) it generates.

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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There is unity on need for a stronger commitment to defence, but beyond that the campaign looks like being a policy free zone. The problem there is that, assuming a Labor government, it will be hamstrung on doing anything in the same way that the Abbott Coalition government was after it won in 2013. Without a mandate to do anything, its a slippery slope. The missing policy issue a government will confront is inflation. If it is big problem in the US, which it clearly now is, then no government here can afford to ignore it. The pain of the 1970s and 1980s inflation appears to have been forgotten. Its cost was extremely large. The idea that government can drive real wages growth without productivity as its source and not feed inflation is dodgy economics and would be very risky economic policy. And despite talk about productivity, beyond motherhood statements, there is no strategy out there worth a pinch to actually do anything to lift productivity and support wages growth. On the issue of renewable energy, the focus should be on the most efficient way to get there. Too much on symbols, following the Europeans. Are subsidies for (producers of) electric vehicles the most efficient use of dollars? I doubt it. Tax reform - no chance. With an increase in the GST ruled out, there is no scope to contemplate a more efficient tax system. The Henry Tax Review will remain in a bottom draw.

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

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"

Uncertain

6

Inflation in Australia is not simply a function of domestic factors. With US inflation hitting 6% and constantly surprising on the upside, I see a risk that central banks have under-estimated the inflation threat. Where the US goes, we will surely follow. Secondly. I think central banks generally have overused easy money and underplayed the asset inflation risks, particularly in the case of property. The objective might be to promote growth and employment via stimulus to property (construction) but historically property busts pose a risk to that objective. Not an immediate risk in Australia but certainly a major risk to China's economy at present which poses an indirect risk to Australia. On the review, I think the 2-3% target needs to be reviewed. It might have seemed ambitious in the early 1990s but in the 2000s, a lower target would be easily achieved. And lower inflation will in the long-term be better for the economy.

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)

Uncertain

Net zero is a commendable and good ambition. However, the idea that it is cost-free is almost certainly a convenient fiction. An efficient tax which puts a price on carbon is the most efficient way to go, but when carbon-based energy is effectively to be banned, then it rather defeats the purpose of the tax. As a rich country with abundant space (solar is land extensive) and sun we can afford it. And, while coal might in time decline, demand for our other resources is only likely to rise. However, for the poor countries of the world which have large energy deficits, is the idea that they stay energy poor or become poorer? Where is the global objective of addressing poverty? Will Australia refuse to supply coal/gas to countries? I suspect the divide between rich and poor is going to widen substantially.

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

There is a balancing act here between an adequate safety net and, what many commentators ignore, long-term incentives to encourage maximum workforce participation. The latter was why over a long period successive Labor and LNP governments allowed the jobseeker payment to decline. But if we can get it at the right level then there should be no reason not to increase it in line with increases in the pension (and AWE).

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), Infrastructure projects, Funding higher quality aged care, Increasing subsidies for child care

Given the source of the crisis, and the need to protect the aged while allowing the rest of the economy to operate more normally, more money to aged care seems desirable. Given the downsides of working from home, more funding for childcare, seems desirable on a number of fronts. Given the large (share of the COVID) cost imposed on a minority (businesses), some extension of Jobkeeper is warranted. This helps a broad spectrum but particularly sectors hard hit (eg hospitality) and increases the chances that these businesses can revive. Still needs to be withdrawn as need recedes. Given the sharp decline happening in construction activity which will only worsen in 2021, some temporary boost to construction via infrastructure would be desirable.

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 abandoned

10

The super scheme has been good for full-time, high income workers but has not met, and cannot by design, meet the needs of low-income and part-time workers. These inherent design flaws mean it actively discriminates against women and is of minimal value to low income households. The better policy would be to increase the safety net provisions - e.g. pension AND aged care support - and reduce means testing and pay for that by reducing the tax benefits to super in the accumulation phase, if compulsory are tax incentives required. In the retirement phase, put it on a par with private savings and (as per the Henry Tax Review) lower and simplify the (complex) taxes on private savings. The Henry Tax Review exposed most of these flaws and the nonsense that Australia's scheme is a world best scheme touted by some. Now, however, having created this scheme and a whole raft of vested and political interests (in this case mostly on union/ALP side), the voices against a sensible debate on this make reform incredibly difficult.

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 

Uncertain

7

I agree that a level of on-going fiscal support is needed. However, there is a trade-off here. Given the magnitude of the shock, it is not possible for Australia to avoid a decline in demand and a recession. It can only be mitigated. At some point, the cost (of fiscal support) will be larger than the benefit. in addition to the fiscal (debt) cost, there will be the cost to the economy of not adapting in a dynamic way if support is "too generous".

Poll 39

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

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

Agree

9

While empirical studies of various quality have tended to cloud the issue, the idea that a higher minimum wage would not displace jobs particularly in the current environment is surely not contested by any serious economist.

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

3

The health benefit is very clear. Sustained R>1 implies exponential outbreak. But R<1 could be elimination or containment, and the economic cost of the two could be very different. The more nuanced question would be the cost of elimination (and stay eliminated) strategy vs containment strategy (able to put out spot fires) which implies taking some risks. Elimination could free up the domestic economy but would for example require borders closed for a long period. For an open economy like Australia that will impose a large cost (on international traded services). It would probably preclude even the small risk with say allowing foreign students to return - down the gurgler for universities. We need to take some non-zero level of risk. Otherwise, the cost will be probably be too high.

Poll 29

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

Strongly agree

10

Clearly demand (and tax) factors do matter. But Australia is not unique in having high house prices so blaming factors (pretty much) unique to Australia (e.g. negative gearing, capital gains (our cg rate is not low)) is 'easy' but does not stand up to scrutiny no matter how many times it is repeated. More importantly, on the argument that says that supply does not matter, the issue is that restricted supply (zoning, urban boundaries) means that the market for land is not competitive, or the supply curve is highly inelastic. The argument that households grew by 10,000 and we supplied 10,000, therefore supply could not have been the issue, misses that point entirely. Outside the overly-defensive planning fraternity there is very little support for the supply does not matter proposition - because it is based on dodgy economics. (Would anyone argue that building less would reduce prices?) In the US, the Obama report of 2016 ( https://www.whitehouse.gov/sites/whitehouse.gov/files/images/Housing_Development_Toolkit%20f.2.pdf ) very clearly stated that supply was the crucial factor, explaining in their case the high cost of housing in say San Francisco, etc - cities like our Australian cities and without the easy excuse of negative gearing. See my Chapter 1 in the CEDA report: https://www.ceda.com.au/CEDA/media/General/Publication/PDFs/HousingAustraliaFinal_Flipsnack.pdf

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."

Disagree

6

I started off agreeing but then thought about [it]. The factor which might be expected to put downward pressure on wages is the competition it will generate. However, to the extent that this and other new technology increases productivity, that will ultimately feed through into higher real wages, including for workers in this sector. As with the impact of all technology, the notion that government intervention is required must be highly problematic. On what basis is this technology different? Do we advocate against making markets competitive?

Poll 16

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

Disagree

7

Not clear whether this question relates to investors or owner-occupiers or both but I assume the latter. It is obviously true that if the cost of capital is raised for buyers it will dampen demand. But housing has and always will be cyclical, the key being that it is a leveraged investment by both investors and owner-occupiers, and we observe this volatility across countries with a range of different tax treatments. There is an inflation tax component to capital gains and if we look at the equity market experience since 1999, the effective tax rate has been high. Tax changes need to be made with all asset markets in mind not just the housing market and not just the short term. The origins of the current boom (in Canada, UK, NZ, coastal markets in the US, and Australia) are interest rates which now appeared to have passed their low, so the probability is that tax changes will hit a market on the way down.The other point is that, beyond the short term, the real issue with housing is and remain supply constraints. I might just mention that Hilber (2016) estimated that regulatory controls add 35% to the cost of housing in the UK - rough estimates suggest that the impact is also very significant for Australian cities. That too may economists appear to support the populist view that tweaking the tax system is the answer rather than fundamental reform on the supply side is disappointing.

Poll 13

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

Agree

3

In terms of temperament, Hilary Clinton is clearly the better candidate. But she is also divisive and will have a very weak mandate. In terms of policies, not clear exactly what Hilary Clinton will do. Will she also close down the TPP free trade agreement which would be good for Australia (and also good for the US). Beyond all the rhetoric and heat, how much will actually change in the US? I suspect not much.

Poll 12

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

Agree

6

While the economy should benefit, it is contingent on policy. In the case of cities, the increase in population means higher rents and prices. But this can be moderated by adequate investment in transport infrastructure and less restrictive policies on supply.

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."

Agree

5

Whereas Australia's comparative advantage in resources is fairly clear, it is not so evident that Australia has a comparative advantage in services. That is there will be a lot more competition. In finance, doubtful that we have much to offer. In tourism, we will get a share of a big pie as we did with Japan but Europe and other destinations are also close to China. Ironically, in mining services we do have a comparative advantage.

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

10