Wednesday, May 26, 2021

Going electric and banning new petrol-powered cars could be Australia’s next big light bulb moment

In 2007 Malcolm Turnbull turned off an industry’s life support without blinking.

The industry made light bulbs, of the traditional kind; so energy-inefficient they lost most of it as heat.

“A normal light bulb is too hot to hold — that heat is wasted, and globally represents millions of tonnes of carbon dioxide that needn’t have been emitted,” he explained.

From February 2009 it became illegal to import the traditional pear-shaped globes, while from November that year it became illegal to sell them.

It was a world-first, announced by Turnbull as environment minister and sanctioned by his prime minister John Howard.

The European Union followed, and then, some years later, China.

Globally, electric lighting generated emissions equal to 70% of those from cars. Australia’s switch cut emissions by an estimated 4 million tonnes per year.

Turnbull was able to do it because Australia no longer made light globes.

There was no domestic industry — and no jobs — to protect.

Australia stopped making cars in 2017. The thousands of workers who used to assemble cars in Australia no longer have those jobs.

Which means there’s no car industry to protect.

We have the opportunity to do to traditionally-powered cars what we did to incandescent light bulbs.

And the need. We’ve all but committed ourselves to net-zero emissions by 2050.

In a landmark report released last Tuesday, the International Energy Agency said the path to net-zero by 2050 was narrow and extremely challenging, requiring governments to “take action this year and every year after so that the goal does not slip out of reach”.

Many of the 400 or so milestones it set out are challenging for Australia, among them no new coal mines or mine expansions from this year, and the closure of almost all of Australia’s coal-fired power stations by the end of this decade.

But one of the milestones ought to be easy.

It’s no new sales of internal combustion cars by 2035.

The rest of the world is racing ahead

As a step along the way, the agency wants two-thirds of all new cars sold to be petrol-free by 2030. Australia, with no vehicle production industry to care about, ought to get there sooner.

Norway has promised no new petrol car sales by 2025; Denmark, the Netherlands, Ireland and Israel by 2030; and California and the United Kingdom by 2035, a target the UK has brought forward from 2040.

In addition, the European Union is imposing manufacturer-specific emissions targets, which will force each one to either sell a greater proportion of non-petrol vehicles or make the ones they do sell much more efficient.


Read more: Costly, toxic and slow to charge? Busting electric car myths


Manufacturers are getting in early. Honda says it will sell only electric and hybrid vehicles in Europe starting in 2022, three years earlier than previously planned. Volvo says 50% of its worldwide sales will be fully electric by 2025 and the rest hybrids.

Like the transitions to colour TV, automatic car windows, automatic transmissions and transistor radios, the shift will be one way. When production lines are retooled, there will be no turning back.

Moving quickly would do more than help Prime Minister Scott Morrison produce a credible roadmap to take to Glasgow climate talks in November.

It would enable us to avoid becoming a dumping ground for the dirtier, more polluting vehicles that can’t be sold elsewhere while the changeover is underway.

Switching soon would save us money

And it would save the government money. It has just committed to pay up to A$2 billion to keep Australia’s two remaining oil refineries open until 2027.

Without the payments, Ampol might have closed Lytton in Queensland (it was weighing up doing so) and Viva Energy refinery might have closed its loss-making refinery at Geelong.

While both have accepted the money, Ampol has unveiled plans to test the production of solar-powered hydrogen on its site at Lytton and Viva Energy is planning a solar farm on its site at Geelong.

Most of Australia’s petrol is imported, much of it from Singapore, meaning little would be lost if Australia’s refineries closed.

The Australian-produced fuel is dirtier than the imported fuel, something the Australian government promised to fix this month by paying Australia’s plants to make the ultra-low sulphur petrol the rest of the world switched to years ago.

If a ban on imports of petrol-powered cars wouldn’t much hurt Australia’s reluctant refiners, it might hurt petrol stations, but not much.

Australia’s service stations are in large measure retail convenience stores. They try to maximise “basket size”. Ampol plans to turn the petrol side of the business into a recharge and refuelling network for electric and hydrogen vehicles.

Mechanics would lose jobs

The much-larger industry at risk from a switch to electric vehicles is car maintenance. The Bureau of Statistics counts 352,200 automotive and engineering trades workers, almost all of them male and full time.

That a switch to low-maintenance electric vehicles would shrink their industry is unfortunate for them, but inevitable. Propping up their industry by delaying the transition would only encourage more young people into jobs with limited futures.

When Australia switched from valve to transistor-operated TV sets in the 1970s, an army of “television repair men” was thrown out of business, along with their vans and two-way radios.

Most of them stayed in the workforce doing things we needed.

To have kept using sets requiring maintenance just to have kept them in work would have been an insult to them and us.

And while Australia’s switch away from incandescent globes was problematic (many of us liked the yellowish glow we’d become used to) the switch to electric cars is looking positively joyous.

Crikey/Coal Miners Driving Teslas

This week Crikey pointed to a video in which the Queensland MP Bob Katter gets his first taste of a Tesla as it accelerates from zero to 100 kilometres per hour in just over three seconds.

Yeehaw!” he yells. “This is so exciting.”

Australians usually embrace the future. At times we’ve been ahead of it.


Read more: International Energy Agency warns against new fossil fuel projects. Guess what Australia did next?


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Monday, May 24, 2021

Great approach, weak execution. Economists decline to give budget top marks


Despite overwhelmingly endorsing the general stance of the 2021 budget, only a few of the 56 leading economists surveyed by the Economic Society of Australia and The Conversation are prepared to give it top marks.

Asked to grade the budget on a scale of A to F given Treasurer Josh Frydenberg’s objective of securing Australia’s economic recovery and building for the future, only three of the 56 economists surveyed gave it an ‘A’.

But a very large 41% awarded it either an A or a B, up from 37% in last year’s October COVID budget.

The economists chosen to take part in the Economic Society of Australia survey have been recognised by their peers as Australia’s leaders in fields including macroeconomics, economic modelling, housing and budget policy.

Among them are a former head of Australia’s prime minister’s department, a former member of the Reserve Bank board, a former OECD director and two former frontbenchers, one from Labor and one from the Coalition.

Of the panel members who commented on the historic stance of the budget — expanding the size of the deficit beyond what it would have been in order to drive down unemployment — all but three offered enthusiastic endorsement.

Emeritus Professor Sue Richardson of the University of Adelaide commended the government for at last turning its back on a “debt and deficit” mantra, that was “never justified”.


Read more: Exclusive. Top economists back budget push for an unemployment rate beginning with '4'


Professor Richard Holden praised the “watershed”. In due course there should be increased attention paid to the structure and quality of spending, but for now we should applaud the “Frydenberg Pivot”.

Saul Eslake said the strategy of providing further stimulus to push unemployment down to levels not seen consistently since the first half of the 1970s was the right one. It meant the Reserve Bank and the treasury would no longer be working at “cross purposes” as they had been for most of the past two decades.


The Conversation, CC BY-ND

But Eslake said the budget fell short in the A$20 billion it devoted to tax concessions for small business in the mistaken and unfounded belief it is “the engine room of the economy” and in housing measures that failed to heed warnings from history about the risks of ultra-high loan-to-valuation ratios.

Rebecca Cassells of the Bankwest Curtin Economics Centre said the claim that 60,000 jobs would flow from extending the temporary loss carry back and full expensing tax concessions was “a stretch,” with the connection quite tenuous.

Bucks, but not the biggest bang

Consultant Nicki Hutley said a bigger boost to the JobSeeker unemployment payment would have achieved much more than the $7.8 billion one-year extension of the “lamington” low and middle income tax offset.

Economic modeller Janine Dixon said while spending more to get more people into work was the “right setting for the times,” Australia had to ensure its workforce was ready to supply the extra aged care and child care and disability services it had funded by delivering the right training, especially in the absence of migration, which has traditionally been used to address workforce shortages.

Labour market specialist Elisabetta Magnani said measures to boost wages in the caring occupations could have achieved the double bonus of drawing more workers into those occupations and shrinking the gender pay gap, given that more than 80% of the workers in residential aged care are female.

Little for net-zero

Michael Keating, a former head of the prime minister’s department, said restoring high wage growth would require big investments in education and training, which sits oddly with the cuts in funding for universities. The extra funding for apprentices and trainees only makes up for past cuts.

Professor Gigi Foster said the $1.7 billion spent on childcare subsidies was only “surface-level fiddling with the sticker price”.

“Where is the supply-side intervention required to make childcare services sustainably accessible and of high quality?” she asked. “Childcare should be viewed as social infrastructure. Instead, when we heard infrastructure, it was mainly code for transportation.”


Read more: Fewer hard hats, more soft hearts: budget pivots to women and care


Margaret Nowak of Curtin University said a budget that really “built for the future” would not have focused on the “infrastructure of the past”. Professor Richardson lamented that most of the infrastructure spending was on traditional “roads and ports” when the future was net-zero emissions.

“There is little in the budget that supports this transformation,” she said. “It is an extraordinary lost opportunity.

Nicki Hutley said retooling the economy for zero emissions would have brought forth "more jobs, higher wages, more growth and private sector co-investment”.

Some concern about debt

Former OECD director Adrian Blundell-Wignall said a much-greater investment in vaccinations would have helped “get the economy back to work and the borders opened sooner which, in turn, would have saved unemployment benefits, tourism, aviation support and the need for the extension of temporary measures”.

And he was concerned that a jump in US inflation might cause international interest rates to rise faster than expected, forcing Australia to cut its projected budget deficits in order to stabilise net debt.


Read more: Frydenberg spends the bounty to drive unemployment to new lows


Former International Monetary Fund economist Tony Makin, a critic of government spending during the global financial crisis, described the budget spending as a “knee-jerk primitive Keynesian reaction” to the COVID recession.

Unease about going into debt to keep and create jobs aside (and very few of the economists surveyed shared Makin’s unease) the criticisms of the economists surveyed relate to execution and details. If Frydenberg had been judged on his approach, most would have given him an A.


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Wednesday, May 19, 2021

The GFC provided the secret sauce we used to ward off the COVID recession

We got an awful lot right during the COVID crisis — an awful lot that we couldn’t have got right just a few years earlier.

Which is another way of saying we were incredibly lucky.

Had COVID attacked during the 1980s there would have been no way to make a messenger RNA vaccine, not even for animals.

The national broadband network wouldn’t have been thought of. It wasn’t complete until 2020.

Even three years earlier, in 2017, the NBN reached only half of Australia’s 10 million households.

Had COVID struck then, before the broadband network was complete, working from home, telehealth and home schooling might have been impossible for many Australians, with devastating educational and other consequences.

And had it struck just a few years earlier still, we wouldn’t have learnt from the global financial crisis.

War Games

Australia’s handling of the GFC was exemplary, as evidenced by the fact that in much of the rest of the world it isn’t called the GFC, but The Great Recession.

Getting that crisis right owed something to a happy accident, as Ken Henry, head of the treasury at the time, explained on Monday at a seminar organised by the Institute of Public Administration.

A few years before the crisis in 2004 he was sitting in a room with senior officials discussing “some macroeconomic topic” when his deputy Martin Parkinson, sitting on his right, poked him with his left elbow.

“Martin said: you know it’s just occurred to me that you and I are probably the only people in this room who have ever experienced a recession — maybe we should have a workshop on that, what we would do if there was another crisis”.

The early 1990s recession was handled badly

Parkinson and treasury secretary Henry had worked for the Hawke and Keating governments during the early 1990s recession which scarred the Australians who it threw out of work for a decade.

In a series of “war games” held away from the treasury building, they and other officials determined that next time they should advise the government to quickly abandon budget discipline and fight what was coming with overwhelming force.

As Henry put it: “no matter how great the importance of fiscal discipline in establishing policy credibility, it is nothing compared to the loss of credibility associated with a recession”.

If the treasury didn’t tell the government this, the government would catch on anyway and sideline it for advisers who would.

Megan Aponte-Payne, Steven Kennedy, David Gruen, Ken Henry, Malcolm Edey, Meghan Quinn and David Tune at the GFC seminar. Isabelle Franklin

“I came out of those discussions determined that if Australia were to confront a large negative shock during my tenure as secretary, the treasury would seek to put itself front and centre in advising the government,” Henry said.

“We would not be taking seats in the back row by counselling a government to rely on monetary policy, the exchange rate, or automatic stabilisers.”

As for the idea of “proportionate response”, which was still being counselled by some in the early stages of COVID last year, Henry said the word “proportionate” could be applied to a response, but never to preemption.

Preemption is not proportionate

“If you want to preempt something, you don’t talk about being proportionate,” he said. “I remember some commentators saying you should wait until you see the ‘whites of the eyes’ before taking action. "I wouldn’t know what action to take at that stage, presumably it would be to run as fast as you could, I just don’t know.”

The key thing was to get money into Australian’s hands immediately. Spending on infrastructure (spending on almost anything other than households) would take too long.

During the financial crisis Labor got money into households’ hands by handing out cheques. During COVID the Coalition did it by doubling benefits and routing payments through employers and calling them JobKeeper.

Bandwidth matters

Henry, and David Tune who was in the department of prime minister and cabinet at the time and later headed the department of finance, told the conference that attempting to do other things while getting money out the door got in the way, among them insulating homes and building school halls.

Governments have limited “bandwidth” or “thinking space”, and during the GFC the Rudd government was also considering taking over hospitals, taxing carbon, reforming the tax system and building the NBN.

The Morrison government seems to have learnt that lesson, but it doesn’t seem to have learnt another, which is that the Commonwealth isn’t good at managing projects.

The Commonwealth can’t run projects…

Whether it’s vaccinations or quarantine or insulating homes, projects are best managed by state governments who have actual experience of running things.

Another important lesson, reinforced during COVID is that in practical terms the ability of the Reserve Bank to support the government in keeping a recession at bay might be unlimited.

The Reserve Bank deputy governor at the time Malcolm Edey told the conference that the next step after low interest rates and buying government bonds is direct “money-financed fiscal expansion”, where the bank creates money for the government to spend.

…but its financial power is unlimited

With all of the government’s borrowing now in Australian dollars, and most private overseas borrowing effectively in Australian dollars because it has been hedged against exchange rate movements, and with the debt ceiling gone, there’s no limit to the force and speed with which the government can stave off a recession.

The current treasury secretary Steven Kennedy conceded that in one way fighting the COVID recession had been easier than fighting the GFC.

COVID had a clear start date. The GFC had a rolling series of starts that made it hard to be sure the worst hadn’t passed.


Read more: Frydenberg spends the bounty to drive unemployment to new lows


And perhaps because of that, we discovered what Australians can do.

Treasury Deputy Secretary Meghan Quinn praised the banks for deferring payments on $250 billion of loans, Coles and Woolworths for working together to stock each other’s stores and the private and public health systems for working together in a way that wouldn’t have been thought possible before the pandemic.

We read the GFC playbook, then went further.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Tuesday, May 11, 2021

Frydenberg spends the bounty to drive unemployment to new lows

Never before has a budget spent so much to supercharge the economy after the worst of a recession has already passed.

The economy bounced back from last year’s COVID recession far more sharply than the treasury (or just about anyone else) expected.

The bounty from the higher-than-expected tax collections that flowed from more people than expected in work, a much higher-than-expected iron ore price, and lower than expected unemployment benefits, should amount to A$26.8 billion this financial year, $15.5 billion the next, and $18.6 billion the year after that.

But rather than bank those riches and improve the budget bottom line, as the Coalition’s budget strategy used to require it to do, the government has instead decided to spend the lot.



It will spend $21 billion of this year’s $26.8 billion; it will spend or give up in new tax concessions $26.9 billion — far more than next year’s $15.5 billion bounty, and so on.

Treasurer Josh Frydenberg has come good on his historic promise to keep spending way beyond the crisis, to drive the unemployment rate down below where it was when the pandemic started.


Read more: View from The Hill: Frydenberg finds the money tree


The budget predicts an unemployment rate of 4.75% by mid-2023 and 4.5% by mid-2024.

If delivered (and the treasurer’s revised strategy published in the budget requires him to keep spending until it is), it will mark what the budget papers describe as, “the first sustained period of unemployment below 5% since before the global financial crisis, and only the second time since the early 1970s”.



In the same way as Australia emerged from the early-1990s recession with a dramatically lower inflation rate because the Reserve Bank was determined to salvage something from the carnage, Frydenberg has decided to exit the COVID recession with an ongoing lower floor under unemployment.

Both the treasury and Reserve Bank believe Australia can sustain much lower unemployment than the 5-6% it has grown used to. The treasury’s estimate is 4.5%; the Reserve Bank’s is nearer 4%. Before COVID, the United States managed 3.5%.


Read more: Fewer hard hats, more soft hearts: budget pivots to women and care


If achieved, it will mean hundreds of thousands more Australians providing services, drawing paycheques, and paying tax. And no longer on benefits.

A dramatic budget graph tracking the fortunes of every Australian whose payroll was reported to the tax office throughout 2020 shows the biggest victims of the COVID recession — by far — were those without post-school education. At the deepest point of the COVID recession in May, they were almost three times as likely to have lost their jobs as Australians with degrees.

Budget Paper 1, Statement 4: The labour market through COVID-19

The budget provides an extra $400 million for low-fee or no-cost training for jobseekers, to be matched by the states; an extra $481 million for the transition to work employment service directed at Australians aged 24 and under; and a further $2.4 billion to the Boosting Apprenticeship Commencements program.

But most of what it intends to do for jobs is the indirect result of a barely precedented expansion in spending and tax concessions in all sorts of areas.

The extra $17.7 billion it is spending on aged care over four years ought to create many jobs, as should the extra $13.2 billion it is spending on the National Disability Insurance Scheme.

The $1.7 billion it is spending on making childcare more affordable should both create jobs in the sector and free up more parents to return to work.


Read more: Cuts, spending, debt: what you need to know about the budget at a glance


An extra $20 billion in business tax concessions should help as well.

The budget’s break with the past isn’t its dramatic expansion of discretionary spending. That’s common in recessions. What’s unusual is that spending is being ramped up when we are not in recession.

In the words beloved of economists, the spending is “pro-cyclical” rather than “counter-cyclical”. It is designed to supercharge our exit from recession rather than merely bring it about.

And there’s little sign of the spending stopping.



If this government or the next achieves success in driving the unemployment rate down to 4.5%, it will want to go further. It will keep going further right up until we get inflation near the top of the Reserve Bank’s 2-3% target band and wage growth in excess of 3%, neither of which this budget foresees in forecasts going out four years.

Government debt, anathema to the Coalition when Labor ran it up during and after the global financial crisis, isn’t much of a constraint.


Read more: Josh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment


The Reserve Bank holds much of the government’s debt (it didn’t during Labor’s time) and is buying as much as it needs to to keep interest rates low. Recently, interest rates have been rising, but not for most of the government’s borrowings, which are long-term.

The budget papers show that even with net government debt at 34% of GDP and heading to 44%, interest payments on that debt are much less of a drain on the budget than they were back in the mid 1990s when net debt hit 18% of GDP.



And the times have changed. Worldwide, few nations have an aversion to government debt, especially not the United States. In Australia, the only side of politics that used to complain about debt is in currently in office.

Before COVID, the fiscal strategy spelled out in the budget as part of the Charter of Budget Honesty required the government to eliminate net debt.

Frydenberg’s revised strategy merely requires him to stabilise and then reduce net debt “as a share of the economy”.

His priority is driving down unemployment. If that helps expand the economy and so drives down net debt as a share of the economy so much the better. But he wants to do it regardless.


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Wednesday, May 05, 2021

The budget is a window into the treasurer’s soul. Here’s what to look for Tuesday night

As surprising as it may seem, Australian budgets aren’t really about money — they’re about values.

What in America they call the State of the Union, in Australia we call the federal budget.

As a case in point, a key part of next week’s budget will be an announcement about childcare, but the childcare measures won’t start until 2022-23.

It’s not clear that they’ll need to be in the 2021-22 budget in order to get approved.

Indeed, the budget’s formal title is Appropriation bill (No. 1) 2021-22. The budget bill will deal only with appropriations for 2021-22.

But the theatre that has built up around the presentation of that bill — the budget speech — has given it the space to deal with so much more.

Legally, the budget needn’t deal with much

Last year’s speech mentioned values, twice. It spoke of our “cherished way of life”, of the courage, commitment, and compassion of healthcare workers and volunteer firefighters, of our “invisible strength”.

And it extended the low and middle income tax offset for another year.

Legally, the budget bill can’t include tax measures. That’s outlawed by the Constitution.

Tax measures have to be introduced in separate legislation, measure by measure — or not be introduced at all. Our government can continue to collect tax at the existing rates for as long as it likes, unlike in Britain where tax collections form the core of the budget bill and need to be re-authorised every year.

In Australia, government spending does need to be re-authorised every year, but only spending which is for the “ordinary annual services” of government.

Everything else — the vast bulk of government spending, everything from Medicare to pensions to grants to the states to family support to support for private schools and private health insurance — is ongoing, approved on a never-ending basis under so-called “standing appropriations” or “special appropriations”.

At the last count there were 240 such special appropriations, covering everything from the funding of universities to paid parental leave.

The Department of Finance says 167 of them are unlimited, meaning there is “no defined ceiling on total expenditure”.

What’s left, what actually needs to be re-approved in the budget each year, is little more than the payment of rent and public service wages, suggesting that if the Senate had rejected “supply” (the budget appropriation bill) during the 1975 constitutional crisis as it had threatened to do, the Whitlam government could have taxed and spent much as before, although it would have had to get private banks to advance public servants’ wages, something it was investigating doing.

Practically, it deals with most things

It might be because it needs to do so little that the budget has come to do so much.

These days we look to it as a source of official economic forecasts, but that’s a recent development. Up until the late 1980s the forecasts weren’t really forecasts — they covered only the financial year ahead, which, because the budget was delivered in August after the financial year had started, covered not much at all.

Now the “forward estimates” for spending and revenue and the state of the economy go out for four years, and some of them for ten.

The budget has become a statement of the government’s values in part because it puts numbers on those values — how much it is prepared to spend on health compared to defence, how much it plans to spend on superannuation tax concessions for high earners compared to pensions for low earners.

Which makes it a statement of values

As with the US President’s State of the Union speech, it’s the only night of the year in which the government sets out clearly what it stands for and what it plans to do.

An accident of history means it’s the treasurer rather than the prime minister who delivers the statement of values, although the treasurer speaks for the prime minister, as Joe Hockey spoke for Tony Abbott in 2014 when he infamously declared his budget to be for “lifters, not leaners”.

Josh Frydenberg’s values will be apparent in how he responds to a surging iron ore price (last year’s budget assumed US$55 a tonne and on a slightly different measure it’s currently north of US$180) and much stronger than expected recoveries in jobs and the share market.


Read more: Exclusive. Top economists back budget push for an unemployment rate beginning with '4'


It would be tempting to wind back spending and push up taxes in order to close the budget deficit without seeing how far the recovery can run.

That Frydenberg says he won’t, not until he gets the unemployment rate below 5% and hundreds of thousands more Australians are in jobs, is a statement of values.

That he is reportedly planning to spend an extra $10 billion (over the four-year “forward estimates”, not per year) on responding to the findings of the aged-care royal commission when the commission identified much greater needs might also be a statement of values.


Read more: Josh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment


As might the forecasts he makes for immigration, for the spending on mental health promised in response to the Productivity Commission inquiry, for the rollout of vaccines for Australians and vaccines for countries that need them more than Australia.

They’ll all be part of a program that makes clear what the government stands for and against which it can be judged. Tuesday night will matter.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>