Australia’s enfeebled economy
Why isn’t climate change the top election issue?
Progress in electricity, but what about transport and agriculture?
Floods along our east coast should have brought to our attention the consequences of climate change, and our lack of preparedness for those consequences. They have done that to a certain extent, but politically that awareness has been overshadowed by accusations about the Morrison government’s politicization of the distribution of flood relief assistance.
John Quiggin sums up the political situation in his contribution to The Conversation: Time’s up: why Australia has to quit stalling and wean itself off fossil fuels. Labor has some worthwhile climate-change policies, such as Re-wiring the Nation, but remembering the Coalition’s vicious lies about climate change in previous campaigns, it has been timid in promoting any policy that might leave it open to attack from the Coalition and its supporters in the Murdoch media.
The issue isn’t going away, however. On Tuesday the Intergovernmental Panel on Climate Change released the report of its third working group, focussing on the emission cuts needed if the world is to avoid 1.5 degrees of warming, and reporting on progress towards achieving those cuts. In brief, the world is not on track to hold warming to 1.5 degrees.
Although it does not have country-specific findings, the IPCC does call out Australia for having repealed the Clean Energy Act in 2014 (one of the Abbott Government’s most economically irresponsible actions), and it notes that Australia is one of the countries that has been excessively focussed on job losses in making a transition away from fossil fuels. It politely suggests that considerations of the “political economy” of supplying fossil fuels have held us back.
For those disinclined to read the 2913 page report, the UN has a short summary in a press release, emphasizing the role better urban design can play in reducing emissions – an important consideration for our state and local governments.
Michael Mazengarb, writing in Renew Economy, summarizes the report’s implications for Australia, “a country where lobbying and opposition from fossil fuel industries has had the most success at frustrating climate action”. He has another article stressing the need for Australia to take action on all fronts.
Writing in The Conversation a group of five Australian and foreign experts summarize the report, suggesting actions Australia needs to take: IPCC finds the world has its best chance yet to slash emissions – if it seizes the opportunity. Also writing in The Conversation another group of Australian academics has a broadly similar article, IPCC says the tools to stop catastrophic climate change are in our hands. Here’s how to use them, with emphasis on cuts we can make in agriculture and transport. (Most of our efforts to date have been in electricity generation.)
Why have our governments given up on structural reform?
It is easy to list policy challenges facing Australia – dealing with the effects of climate change, reducing our contribution to climate change and making the associated economic re-structuring, improving our dismally poor productivity, re-building our transport and communication infrastructure, making housing more affordable, generating public revenue to fund aged care and health care adequately, and restoring a fair distribution of opportunity and wealth.
Yet neither the government nor the opposition has a plan for dealing with these structural issues. The Morrison government’s vision for Australia is a return to a pre-pandemic “normal” –- the normal mediocrity of the federal Coalition – and the opposition, while promising to bring better government (it could hardly be worse), is promoting a platform that does address some of these problems, but only as a set of incremental measures.
At an Adelaide Writers’ Week session two policy experts outlined the reasons Australian governments have largely abandoned structural reform, broadcast as an ABC Big Ideas program. They were Martin Parkinson who formerly held the two most senior positions in the public service – head of Treasury and head of the Department of Prime Minister and Cabinet – and John Daley, former head of the Grattan Institute and now Professorial Fellow at the University of Melbourne. (55 minutes)
Daley was a little more inclined than Parkinson to name the parties responsible for our policy gridlock, but otherwise it would be hard to point to any significant differences in their analysis or suggestions for improvement.
Daley presented three explanations for our poor progress on structural reform:
“The cartelization of political parties”. The term is a reference to the 2018 work of Richard Katz and Peter Mair, who pointed out that in democracies, political parties, rather than presenting competing proposals to serve their idea of the common good, have become cartels guarding the interests of coalitions of interests. (There is a neat summary of their work on the European Consortium for Political Research website.)
Shifts in the way we are governed in Australia. The expertise and collective memory of the public service and other independent sources of advice has been ignored or even disparaged. Policy formation has been left to ministers and their advisers – advisers who know no life other than politics. (Ideally in a democracy ministers are responsible for the broad direction of policy, but they are generally amateurs in the difficult task of policy implementation.)
Changes in our media, which result in their having little capacity for engagement with policy issues. This is partly due to structural changes in media itself with the spread of social media, which prioritizes emotive over analytical content, and the powerful influence of the Murdoch media.
Throughout the session both Daley and Parkinson came back to these themes. Daley also mentioned how climate change, rather than being a question of public policy, has become a political shibboleth – a marker of one’s tribal affiliations. Tony Abbott played a major part in this re-definition.
In the context of the current election campaign they noted that the contest is about retaining or winning office as the sole end of the contest, rather than presenting a set of policies to deal with Australia’s problems and opportunities. As John Hewson put it in The Saturday Paper – The power behind the drone:
The priority is simply winning. And it is not even about winning to lead: it is about getting the position and power but with little or no commitment to creating a meaningful future for our nation and its people.
Although Parkinson and Daley are both highly capable of spelling out prescriptions to address our policy problems, their recommendations are about strengthening the institutions of democracy, including a politically independent public service, campaign finance laws, and a powerful integrity commission. They point out that established political parties are unlikely to welcome stronger democratic institutions: pressure for institutional reform is more likely to come from independent members of parliament.
Parkinson is author of the essay A decade of drift.
The budget goes on taking from some, while giving to the Coalition’s mates
When a government publishes its budget all attention is on the big-ticket items – fuel excise rebates, handouts, announcements of projects. But it takes time for people to find those details the government would rather see stay buried in the hundreds of budget papers. Some of those, revealed in the last few days, include:
Deep cuts to climate change programs, from $2.0 billion in 2022-23 to $1.3 billion in 2025-26, mostly taken from the Australian Renewable Energy Agency and the Clean Energy Finance Corporation. (Michael Mazengarb in Renew Economy)
An extra $50 million under the Future Gas Infrastructure Project, for “seven priority projects, as well as carbon capture and storage infrastructure”, ostensibly to improve our gas security. (Samantha Hepburn in The Conversation)
Cuts in funding to the Human Rights Commission of $27 million over four years, seemingly on the basis that, because it is completing some major cases, its services won’t be in such high demand in coming years. (Amy Maguire in The Conversation)
Ongoing real cuts to integrity bodies – the Ombudsman, the Australian National Audit Office, the Administrative Appeals Tribunal and the Law Reform Commission. (Centre for Public Integrity)
Real cuts to funding for the Department of Foreign Affairs and Trade, with small rises in allocations for foreign aid offset by cuts for diplomacy. (Melissa Conley Tyler in The Conversation)
More giveaways to the already wealthy, as so-called “self-funded” retirees are allowed to keep more of their super in tax-free or low-tax accumulation accounts. (Peter Martin, in The Conversation, with insights on our saving habits and on Labor’s plans for aged care)
The end of the “Restart Investment to Sustain and Expand” program, a measure to help the arts recover from the loss of revenue during the pandemic, as well as cuts to Screen Australia. (Guy Morrow in The Conversation)
An $18 million grant, with promises of ongoing funding, to the “Australian Future Leaders Program” run by a foundation with no staff or office. (Stephanie Borys on the ABC website)
Many more will be uncovered in coming weeks and months. Our budget process is flawed.
There are two parallel steps in the process. One is the “lockup” for media, lobby groups and community organizations at which they are fed the government’s lines so that they can write their press releases and articles before the evening deadline.[1] It’s a process that generally allows only cut-and-paste reporting from carefully-spun government documents, rather than any meaningful analysis. The other is the nationally-broadcast 30 minutes of political spin in the treasurer’s budget speech. It’s a stage-managed event, more in line with practices in Putin’s Russia than those that should be used in a country with open and transparent government.
1. In the lockup, participants are given a full set of budget papers, but because there is tremendous pressure on all participants to get something prepared – a press release, an article – by the end most participants turn to what is conveniently provided by ministers and public servants on hand to “help”.↩
Interest rates,inflation and financial vulnerability
On Tuesday the Reserve Bank issued its short statement on monetary policy, following its decision to keep official interest rates at a record low level. The first seven paragraphs of this eight-paragraph statement build up the case for raising interest rates: inflation is up, housing prices are rising, unemployment is down, and financial conditions are “highly accommodative”. Any reader knows what’s coming.
But the expected rise in interest rates doesn’t come. The last paragraph essentially states that the board wants to see “actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates”, and that it seeks evidence of rises in labour costs.
That “actual evidence” of inflation is undoubtedly the March quarter CPI, due on 27 April. (Don’t the RBA people ever go to a supermarket or even look at their own data on commodity prices?) That CPI release should provide the Reserve Bank with the evidence it claims to seek. In fact for technical reasons this will probably understate cost-of-living pressures.[2] Nevertheless it will probably be a substantial rise – although Isaac Gross of Monash University believes the CPI will mainly reflect once-off price rises, without contributing to ongoing inflation. The Reserve Bank will therefore still hold off raising rates, he believes.
If, however, there is evidence that inflation is established and is not just once-off, will the RBA be independent enough to raise interest rates during an election period, or is it yet another institution compromised by the Coalition’s practice of appointing its supporters to boards of public institutions?
The ABC’s Michael Janda and Emilla Terzon have no doubt that interest rates will rise fairly soon, and that home owners are bracing for mortgage shock. When that rise comes it won’t be of great concern to older and wealthier mortgage holders, who are already ahead in their repayments, but it will be tough on young people who have more recently bought into an inflated housing market. They cite research by Rate City indicating that 14 percent of mortgage holders “would not be able to afford the repayments” resulting from a 1.15 percent rise in interest rates.
On Friday the Reserve Bank issued its half-yearly Financial Stability Review, essentially a test to ascertain how households and business would cope with financial stress resulting from higher interest rates, a fall in asset prices, or a fall in income. Most households with mortgages are in reasonably strong financial shape – in fact their balance sheets have improved over the last year – but there is a vulnerable minority with high debt in relation to income, and high debt in relation to value. So-called housing “investors” (i.e. speculators) are over-represented among borrowers with high debt in relation to income. The Review also notes that there has been a significant decrease in the cash buffer held by businesses.
As one would expect from a central bank it avoids any suggestion of impending hard times: central banks don’t want to spook the market. But a critical reader would summarize it as a warning that a long period of low interest rates, followed by the pandemic, has left many households and businesses with too much debt and vulnerability to coming interest rate rises, asset-price deflation and possible financial shocks.
2. Because of what is known as the “substitution effect” (we swap our consumption towards cheaper goods and services) the CPI generally overstates the rise in the cost of living. But the March 2022 quarter’s CPI will probably have an understatement bias, because gasoline prices rose only at the very end of the quarter (the CPI attempts to measure average prices over the quarter) and because the basket does not include some relatively non-discretionary items associated with Covid-19, particularly rapid antigen tests and changes in transport patterns . ↩