Nicki Hutley

Poll 66

Top economists say Trump’s policies will hit Australian economic growth and push up inflation and interest rates in the US.

Weaker US economic growth Weaker Chinese economic growth Weaker Australian economic growth A weaker US dollar; Higher US inflation; Slower progress towards global net zero emissions

Trump has claimed he will deliver on his promises, but some will be more difficult to achieve than others. On tariffs, there is little doubt that the proposal will be inflationary if played out in full. Peterson Institute modelling also shows significant negative growth impacts for China and Australia. Undocumented migrant workers have played an important role in US labour markets for decades, particularly post-pandemic. Attempting to remove 11 million workers will likely create some shortages, albeit largely in unskilled sectors, which could still put pressure on wages and/or reduce output in sectors such as agriculture at the margins. A perceived lack of independence of the US Federal Reserve, as threatened, would create financial market jitters, raise interest rates, weaken the dollar, and reduce foreign investment. The less immediate but longer-lasting impact of withdrawing support for climate action and increasing fossil fuel production will be in the trillions. Geopolitical instability, if the US paves the way for Russia to defeat Ukraine and becomes more isolationist, will lead to greater uncertainty, higher risks and lower global investment, productivity and growth.

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”.

It will take more than just three of the options listed to address housing and rental affordability. Action to increase supply should be prioritised, although easing planning restrictions (i.e. overcoming NIMBYism) needs to be done with due regard to the environment and should prioritise increasing density, particularly around transport hubs. Distortions such as first homebuyer schemes and negative gearing that just add to demand should be removed. I also think there are strong arguments for including the family home in the age pension test and applying capital gains tax to homes above a certain level (such as 50% above the market median price for homes or apartments in the respective markets). There is also a need to increase social housing (alongside public housing) and to support build-to-rent models. Institutional investment in housing should be prioritised over so-called "mum and dad" investors. We see from the United Kingdom and the United States that this works much better for both landlords and tenants. Finally, both housing and rental affordability should be priorities – they are not mutually exclusive!

Rental Affordability

Ease planning restrictions, Tighten the negative gearing and capital gains tax concessions, Remove first homeowner grants and stamp duty concessions

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 budget forecast is for headline inflation, not the trimmed mean that the RBA might use to assess where monetary policy needs to be. Inflation ? both headline and underlying ? is falling but has some sticky elements including rent. Should core inflation return to target faster than the RBA forecasts, it will be primarily due to factors other than government decisions on spending and tax.

D

While delivering a second surplus, the budget overall will not "fight" inflation. Any temporary easing in the headline rate will be less relevant to the Reserve Bank than the associated stimulus effects, although the latter will likely be marginal and come when consumer demand is on life support. Means-tested energy efficiency support, which permanently reduces energy bills, would have been a better option. Rent assistance may provide more permanent downward pressure, as long as landlords don't try to absorb it. This will be a temptation that's difficult to resist given ultra-low vacancy rates. On the medium-term growth outlook, the industry policy has some sensible elements, supporting critical minerals and green hydrogen which are crucial for the transition to net zero. However, subsidising solar panels is unnecessary and a waste of precious resources. Crunch time for some type of tax reform is coming, given the large baked-in spending items (defence, health, NDIS etc) as well as over-reliance on direct taxes. It's a shame that politics makes the reforms we need so difficult to deliver.

Poll 63

April Poll - panellists were asked about the GST deal with Western Australia.  The following two questions were posed: 

"Is the long-standing arrangement broadly the best method of distributing the nationally-collected GST revenue?" and "Should the 2018 changes be kept or scrapped?"

YES - Tax - GST and others - is paid according to means and distributed according to needs. This is a sound principle.

Scrapped

We should revert to original principals. The previous government unnecessarily bastardised the distribution principles so "the pie" has to be added to at huge cost to satisfy political rather than economic principals

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)"

The payoff to clean-energy innovation has increased

Provide more grants to innovative firms across the entire economy

The US Inflation Reduction Act has been criticised by many as a de facto trade subsidy and a huge impost on the US Federal Budget. Yet it has also spurred the largest recorded increase in investment and has supported strong growth and productivity gains without reigniting inflation. Australia's Productivity Commission has warned against like-for-like?measures in Australia which it claims would be inefficient. Conversely, the likes of Mariana Mazzucato tell us we need to think big to overcome urgent and existential problems such as climate change. With Australia's economy, and especially export revenue, heavily reliant on emissions-intensive sectors, it is in our interest to support first movers willing to invest in new green industries that will help smooth the net zero transition pathway. The recent $2bn ASEAN finance initiative is a good example of a smart use of taxpayer funds. We need to be bold and invest public funds to promote greater private sector participation that will in turn generate spillover benefits across the economy.

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

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

Australia is rapidly running out of its "carbon budget" that is consistent with the Paris target of warming well below 2?C. The economic costs of failing to address climate change are immense (see for example https://www.nature.com/articles/s41467-023-41888-1) such that, on a cost-benefit basis, multiple forms of action to reduce greenhouse gasses are justified, although we should be careful to select the lowest cost options first and foremost. The most economically efficient way to advance the path to net zero would be through a well-designed economy-wide carbon pricing scheme. The International Monetary Fund is currently pushing for a global floor price for carbon and Carbon Border Adjustment Schemes, such as the one recently introduced in the EU and being considered in a range of countries, which will become increasingly common and which could make this more politically palatable in Australia. However, given there is no political appetite for such a scheme, the next-best option would be to expand the safeguard mechanism. Alongside this, the transformation of our energy sector, which is critical to success, is being stalled by delays in rolling out new transmission and investing in energy storage such as community and grid-scale batteries. Our planning system is failing us, but so too is acceptance, and the communication, of the urgency of the task and greater transparency around how a just transition will play out. Policies to address new transmission and storage are key. Given the urgency of the task, I would add phasing out internal combustion engine vehicles and supporting the commercialisation of hydrogen.

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%.

reducing out-of-pocket costs of childcare for families, improving the quality of primary and secondary education, increasing enrolments in tertiary education

3.75

The concepts of "full employment" and the NAIRU may not be that helpful to policy makers, given the uncertainty surrounding them and the inability to model a precise rate. Further, if these measures are concerned with wages growth as the primary source of inflation (as opposed to aggregate demand) then, as the RBA itself has pointed out, this needs to be considered in terms of productivity as well as corporate profitability. Regardless, increasing the capacity of individuals to work (participation rate and skills) will improve the available pool of labour and potentially lower the NAIRU. Supporting childcare affordability (and access) is a key part of this. But enhancing skills and employability is also critical. One could also argue that basic employment skills are just as important as getting people into tertiary studies (noting Skills Commissions says 90% of new jobs will need some sort of secondary training). Expanding support in primary and secondary schools for vulnerable children in particular is critical. But we should also be looking to support adults who, perhaps as a result of disadvantage, have not previously worked. This will be good not only for the economy (lowering the NAIRU) but also for society as a whole.

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: B

B

OVERALL COMMENTS: There's a great deal of detail in this year's budget and much to like. Targeted support for low income households, particularly rent assistance, is a positive. And a big plus goes to energy efficiency measures (far more sensible than cash rebates for bills). Banking 80% of windfall revenues is also deserves credit. A number of measures, such as lower health and energy costs, will support lower inflation rates. So the balance is pretty good. But what marks this budget down, for me, is what is missing. There's just no justification keeping people on JobSeeker in poverty. Even staged increases would have been better than the miserly increase given. Housing is also a loser. Supply needs to shift far more rapidly. Build-to-rent support is great. First home buyer grants are not. And there's nothing to start repair of structural deficits. We need to raise spending to support the worst off in society and to move faster on climate action (and that?s before defence measures). With an ageing population, our tax-revenue equation just doesn't add up. This was the year for the government to be bold, but it are still playing it 'safe'. INFLATION COMMENTS: There are swings and roundabouts for inflation. Dollars to low income households will get spent (and rightly so), but other measures such as lower health and energy costs should offset these impacts. Housing is probably the biggest concern, with more stimulus to demand than supply.

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

.

Cap the price at which producers can sell gas domestically (for already agreed supply)

The Russian invasion of Ukraine has created windfall profits for gas companies at the expense of Australian households. There are a number of ways this could be dealt with, but the quickest is to cap prices (this also avoids government having to collect and redistribute income). Ideally, government (federal and state) will also provide support for more energy-efficient homes and appliances and accelerate investment in renewables. We should be weaning off all fossil fuels as quickly as possible.

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

Equal opportunities and pay for women Green jobs Education and skills

Green jobs A successful transition to Net Zero requires careful planning, including around the required workforce. There are currently severe shortages in many skills needed to support the expansion of the renewable energy sector. Jobs and skills mapping and a road map to ensure adequate labour supply are crucial. This includes ensuring incentives to upskill and reskill and sufficient course places. A gender-balanced response to a traditionally male sector should be part of any policy initiatives.

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

Increase immigration Wind back government spending Reserve a portion of gas and other commodities for domestic use Super profits tax on fossil fuel producers with revenue used to reduce cost of services Address supply side responses through productivity measures.

3%

A significant portion of Australia's current inflation is due to external factors that neither monetary nor fiscal policy can directly address. While it is clear that the RBA's cash rate should be "normalised", this should be done with due regard to uncertain and deteriorating global economic conditions and the temporary nature of some of the causal factors. It is also difficult to see just yet wage pressures in Australia that would be cause for concern, and nor is this a central case forecast for the government at least. Higher domestic mortgage rates won't get Putin out of Ukraine, cure COVID or resolve the impact of flooding on food prices. They will have a harsh impact on low income households in particular. Balance is crucial from here.

Poll 52

"What do you think the intake of permanent migrants should be in coming years"

Australia’s leading economists have overwhelmingly endorsed a return to the highest immigration intake on record, saying Australia should aim for at least 190,000 migrants per year as it opens its borders, up from the target of 160,000 per year set ahead of COVID.

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

.

190,000 is not enough

The impact of COVID-19 on Australia's population and workforce indicates the need to increase migration for a period of time. Numbers need to be balanced with careful planning around housing, infrastructure and other service needs, but can be managed. More important than the overall number is the quality of migrants. For example, young, skilled migrants make a greater economic contribution than older business investment visa holders.

.

190,000 is not enough

The impact of COVID-19 on Australia's population and workforce indicates the need to increase migration for a period of time. Numbers need to be balanced with careful planning around housing, infrastructure and other service needs, but can be managed. More important than the overall number is the quality of migrants. For example, young, skilled migrants make a greater economic contribution than older business investment visa holders.

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

8

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 2

"When do you expect the Reserve Bank of Australia to next lift its cash rate?"

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

.

7

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

Inflationary risks if the current fiscal and monetary policy settings remained without change would certainly be elevated. But that does not appear likely, with fiscal policy already tightening from the peak of the pandemic. Further, a number of aspects of current inflationary pressures are expected to be temporary due to COVID disruptions. Once these work through the system, we may well return to lower trends. But there is a high degree of uncertainty particularly given unprecedented monetary policy measures. The RBA's focus appears to have been mainly focussed on inflation targetting, without much success. The consequences of prolonged ultra low rates on housing affordability is counter to broad societal welfare. A review of the RBA's overall remit would therefore be welcome.

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

The costs of inaction on climate change are immense. The figures vary, but they are all large: one study puts the long term costs from acute and chronic changes at $94bn per year by 2060 (DAE, 2021), and another at $129 billion by 2100 (Kompas et al, 2020) or 1.5% to 2% of GDP. Other economic losses will result from carbon border tariffs and, as pointed out by the Treasurer recently, a rising cost of capital. The one-off impact of a carbon price ? the most efficient means to get to net zero ? is a tiny proportion of those costs. Estimates suggest 1.5% of GDP, but this can be at least partially offset by stimulating carbon-neutral investments using funds currently subsidising fossil fuels ($10bn in 2020). A combination of policies is needed and a carbon price is politically very hard for Australia, so we may well take a less effective path, but it's better than no action at all from an economic, social and environmental perspective.

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"

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

Incentives for vaccines do not appear necessary at the moment as demand is exceeding supply. That is likely to change in coming months as supply of Pfizer and Moderna ramps up and all those willing to be vaccinated have been able to do so. Understanding what the key barriers to uptake are is a crucial step and likely to necessitate advertising, including culturally appropriate messaging. Vaccine passports are an excellent incentive for many, but cash incentives may be needed for some recalcitrants. This should be the last resort

Poll 47

This month, our panellists were asked whether Australia should take action to speed the transition to electric cars.

"As part of efforts to reduce carbon emissions, Australian governments should take action to accelerate the take up, or take no action to accelerate the take up of electric cars"

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

Subsidise only the purchase of non-luxury all-electric cars, Subsidise public charging points for electric cars, Set a date to ban the import of petrol and diesel cars, Make charging points compulsory in new homes and new carparks

10

Decarbonising transport is a key part of moving to net zero. Key barriers to entry for EVs are (currently) cost of vehicle, range and access to charging stations. We have heavily subsidised rooftop solar and, to overcome barriers, should do the same for EVs to ensure rapid uptake - and lower prices. Support for vehicle purchase (through subsidies, lower registration etc., as done in the ACT) will only be needed until such time as we get the market to a critical tipping point. The relatively low cost of home charging units means they should become integral to any new residential or commercial car parking. It should go without saying that transformation of the grid to renewables should go hand in hand with EV promotion.

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

.

C

My overall rating of C is based on three separate categories: dealing with the pandemic recovery phase, longer term vision, and environment. On the pandemic recovery, there is a lot to support short term job recovery and just the size of the spending alone will help this, even if it's not all targeted in the way I'd like. For example, more for those on Newstart would have been preferable to another year of the Lamington, and more help for tourism and the arts would have been better than spending on tradies' trucks.) But, all in all, the public sector will continue to spur economic growth in 2021-22, so I give this component a B+. On the longer term vision, there's some bits and bobs to like. The Patent Box sounds sensible, and the child care subsidy extension, although it doesn't go nearly far enough, is certainly a really positive step in the right direction for female participation. The social spend for aged care, violence against women, mental health, NDIS, and so on - are all very welcome. But there's nothing in there that pulls together a coherent vision of a wealthier, more productive Australia; one with higher wages and a sustainable growth path. This was an opportunity lost, especially given the debt we're now piling up. I'm giving this a B-. Perhaps most important to me, though, is the missed opportunity to invest in a renewable recovery. This would have meant more jobs, higher wages, more growth, less emissions and attracting private sector co-investment. It also would have sent a clear signal to the market, rather than spending on gas and oil. There were a couple of environmentally positive initiatives, but way too little. I rated this an D.