Economic policy challenges and advice for the Albanese government
We can forget about the Coalition’s claim to superior economic management. It has passed on to the incoming government an economy that’s underperforming on short-term dimensions – high inflation, falling real wages, a looming house price bubble, inadequate government revenue, high government debt, and high household debt – and, more seriously, an economy that’s underperforming on long-term structural dimensions – low labour productivity, skills and education deficits, dependence on carbon-intensive extractive industries, and a tax system that prioritises speculation over productive investment while collecting too little revenue.
The ABC’s Ian Verrender summarises this inheritance in an article: The first challenge facing Anthony Albanese as prime minister is to restore Australia's economy, with an emphasis on the Coalition’s fiscal legacy. “Ideology often trumped economics as the Coalition repeatedly shut off sources of revenue and added billions of dollars of unnecessary expenditure”.
Ross Gittins looks on the bright side: Replacing the misbehaving ScoMo is an easy act for Albo to follow. The Coalition government has been so bad that simply by behaving itself the Albanese government will do better than its predecessor:
Just be more truthful, more respectful, more humble, more answerable, more willing to admit your mistakes, more inclusive, more even-handed, more charitable towards the needy, more willing to answer the question, and more protective of Australia’s reputation abroad.
Gittins suggests the Albanese government should follow Saul Eslake’s advice given in his Conversation article: A new dawn over stormy seas: how Labor should manage the economy. Justifiably fearful of putting forward a program for structural reform (which would have evoked fearmongering by the government and the Murdoch media), Labor went to the election with no more than modest reforms on the table, and has inherited the burden of costly and unjustifiable tax cuts. Rather than crashing through with a strong program of structural reform, which would involve breaking promises, it should prepare the ground for structural reform in its next term of office. It does, however, have a strong mandate and parliamentary support for more ambitious action on climate change.
Jim Chalmers, already the very model of a Labor treasurer
Treasurer Jim Chalmers has rapidly fallen into his portfolio. In his first public messages, on the ABC’s Breakfast program (13 minutes) and on the 730 Program (7 minutes) we hear the voice of a treasurer, putting forward a Labor policy within a Treasury framework. (Or is it a Treasury framework within a Labor policy?)
He mentions the trillion dollar fiscal debt inherited from the previous government. Labor has already laid out its immediate spending and savings plans in the pre-election costings (see last week’s roundup). In addition there will be an audit of waste and rorts in preparing the next budget, to be delivered in October.
So far that is much as expected for a treasurer in a new government. Chalmers goes beyond raw fiscal figures and into the quality of public spending with responsible investments. When talking about debt, he says “it is generational debt. At this point there is not a generational dividend for that and that’s what we want to change.” (That quote is from the Breakfast interview; he makes a similar point on the 730 interview, suggesting it’s a consistent policy principle.)
Importantly, he does not promise easy solutions to our economic challenges: dealing with these challenges will involve hard work over a long period. Again, that’s standard fare for a treasurer, but he promises to engage in a public conversation about those challenges. He understands the basic task of leadership – that it’s about bringing others along in the process. If he keeps that promise and helps us all understand the need to bear short-term costs in order to enjoy long-term benefits, we may be able to engage in serious and much-needed economic re-structuring.
Australia’s industrial transition
Labor comes to office with a so-far modest suite of measures to promote the uptake of electric vehicles. Enduring high fuel prices will undoubtedly help that process.
The International Energy Agency has published its Global EV outlook 2022. For the transport sector to contribute its share of achieving net zero emissions by 2050, EVs would have to command a 60 percent market share by 2030. The world is a long way short of meeting that level, or even a more modest 30 percent pledged by IEA member countries. The report mentions familiar problems about achieving a critical level of charging infrastructure and sales volumes necessary for markets to be self-sustaining.
Another aspect of the IEA report, particularly relevant for Australia, is its chapter “EV batteries and supply chains”, covering demand and supply for batteries and the minerals that go into those batteries. While many countries are involved in providing the raw minerals for batteries, China dominates the entire onwards supply chain.
Coal and the Ukraine war
One narrative about the Ukraine war is that industrialized western countries must keep open or even resurrect their fossil fuel supplies in order to reduce their dependence on Russia.
That may or may not be the case, but even if so it would be only a short-term measure. At G7 talks in Berlin, Germany's Economy Minister Robert Habeck has urged industrialized countries to realize that the war increases the urgency for them to phase out coal by 2030, and achieve zero carbon electricity supply by 2035. This represents a significant policy shift for Germany which was more pro-fossil fuel in the war’s early stages. In view of the interconnectedness of energy markets, and the importance of Japan as a destination for Australian thermal coal, this shifting mood will be noted by investors.
They warned us electricity prices would rise if we elected a Labor government
In the roundup of May 7 we drew attention to the quarterly report from the Australian Energy Operator, which reported that wholesale electricity prices have been rising steeply over 2021-22. The subsequent regulated cap on retail prices, set by the Australian Energy Regulator, would normally have been released a few days later, but for some reason the government in office at the time decided to defer any announcement of retail prices until May 25. (Peter Hannam, writing in The Guardian, speculates on one reason why former energy minister Angus Taylor, who was usually so clear and honest in his communication on energy, wasn’t in a rush to release the announcement.)
The AER’s decision for New South Wales, South-east Queensland and South Australia is on their website. In these regions the prices known as the “default market offer” (DMO) – essentially a cap – will rise between 7.8 per cent and 10.7 percent for residential customers, and there will be higher price rises for small business customers (between 15.7 percent and 19.8 percent).
As pointed out in that earlier post, such price rises would not have been necessary had the previous government not deliberately impeded the introduction of low-cost renewable energy.
Thinking about economics as ecology
“Politicians often frame environmental questions as a competition between two values: ecology and economy”.
That’s a quote from a Conversation article by Alda Balthrop-Lewis, of the Australian Catholic University: A flourishing ecology and a healthy economy? Henry David Thoreau thought you couldn’t have one without the other.
She draws on Thoreau’s Walden, and other sources, to explain the “entangled history” of our ideas of “ecology” and “economy”, and how an ecological way of thinking sees the economy in ecological terms – as one inseparable and deeply intertwined sub-system of the natural system in which we all live and make choices guided by moral principles.
School reform – call for submissions
The election has probably commanded the attention of people concerned with public policy, who may have missed the Productivity Commission’s call for submissions on the National School Reform Agreement. The Commission’s supporting paper, available from the link, outlines the general objective – “Australian schooling provides a high quality and equitable education for all students” – and three quantifiable targets towards that end, which the Commission states as:
- Australia considered to be a high quality and high equity schooling system by international standards by 2025;
- By 2031, increase the proportion of people (age 20-24) attaining a Year 12 or equivalent qualification to 96 per cent;
- By 2031, increase the proportion of Aboriginal and Torres Strait Islander people (age 20-24) attaining a Year 12 or equivalent qualification to 96 per cent.
Submissions are due by June 17.