Top economists in no rush to offer cash incentives for vaccination

Australia’s top economists are reluctant to endorse the use of either cash incentives or lotteries to boost vaccination rates.

A survey of 60 leading Australian economists selected by the Economic Society has instead overwhelmingly endorsed a national advertising campaign (90%), vaccine passports for entry to high-risk settings such as flights, restaurants and major events (85%) and mandatory vaccination for high-risk occupations (81.7%).

Offered six options for boosting uptake once supply was in place and asked to pick as many as they liked, only 35% picked cash incentives and only 31.7% lotteries.

Many said advertising and vaccine passports should work on their own.

Others, such as Uwe Dulleck from the Queensland University of Technology, suggested that while cash and lotteries might also work, “maybe a little bit”, they were ethically no better than coercion.

The panel selected by the Economic Society includes leading experts in the fields of behavioural economics, welfare economics and economic modelling. Among them are a former and current member of the Reserve Bank board.

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Read more: Paying Australians $300 to get vaccinated would be value for money

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Michael Knox of Morgans Financial said the most important thing for getting Australians vaccinated was “trust”.

Trust could be built through a national advertising campaign delivered via doctors and chemists as well as the media.

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Others supported advertising in principle, but doubted the government’s ability to do it well.

The Australian government’s A$3.8 million “tacos and milkshake” campaign about sexual consent did not inspire confidence, said RMIT’s Leonora Risse.

The University of Sydney’s Stefanie Schurer said an easy and effective measure would be to simply reduce “transaction costs”. Many vaccinations don’t take place simply because they are difficult to arrange.

‘What’s in it for me?’

Former OECD director Adrian Blundell-Wignall said as a child in the 1950s, if you turned up on the day the polio or smallpox caravan was at school, you were either lined up and injected with a vaccine, or else given a lump of sugar with vaccine on it to swallow. “There was no debate, thank heaven.”

Underlying the reticence of two-thirds of those surveyed to endorse vaccine payments — along the lines of the $300 suggested by Labor or “VaxLotto” suggested by the Grattan Institute — was a concern that it would change the debate to “what’s in it for me?”.

Reserve Bank board member Ian Harper said “what’s in it for the rest of us” was at least as important.

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Read more: Why lotteries, doughnuts and beer aren't the right vaccination 'nudges'

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Macquarie University’s Elisabetta Magnani said cash incentives could “validate mistrust”. The University of Sydney’s Susan Thorp was concerned they might set a precedent.

“Would people expect another cash incentive in future for COVID vaccination boosters or for flu shots or childhood diseases?” she asked.

‘My body, my choice’

Two of the 60 economists surveyed backed “no additional measures”. UNSW Sydney economist Gigi Foster said the choice should be an individual’s, made without social shaming, goading, moralising or outright coercion.

But others strongly disagreed about individual choice. The University of Melbourne’s Leslie Martin said while personal choice mattered, it “should not come at a cost to others”. And Stefanie Schurer said in a world where individual freedoms were already wildly curbed, vaccination mandates and passports did not seem off the charts:

A requirement for children to meet immunisation schedules has been attached to childcare payments since 1998 and for the Family Tax Benefit A supplement from 2012. Families can access their family-related Centrelink payments only if their child’s vaccination schedule is up-to-date. In 2015 exemption rules were tightened to make it harder for so-called conscientious objectors. States such as NSW have also introduced vaccination mandates for children to access childcare centres.

Several of the economists who supported cash payments and lotteries said they should be held in reserve and used only as a “last resort”.

The Grattan Institute’s Danielle Wood said even if they only shifted the dial a few percentage points, there was a big difference between getting 75% of people vaccinated and 80%.

Eighty per cent might be enough to get a re-opening of the economy to “stick” without the need for further lockdowns.

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Detailed responses:

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Top economists want JobSeeker boosted by $100+ per week

Once about as high as the pension, the JobSeeker (Newstart) unemployment payment has fallen shockingly low compared to living standards.

It’s now only two thirds of the pension, just 40% of the full-time minimum wage and half way below the poverty line.

JobSeeker has fallen relative to other payments because while the pension and wages have climbed faster than prices, JobSeeker (previously called Newstart) has increased only in line with prices since 1991.

In an apparent acknowledgement that JobSeeker had fallen too low, the government roughly doubled it during the coronavirus crisis, introducing a supplement to enable people to “meet the costs of their groceries and other bills”.

But that supplement is being wound down, from A$225 per week to $125 on September 25, and again to $75 on January 1, before expiring on March 31.

After March, the single rate of JobSeeker (including the $4.40 per week energy allowance) will drop back to about $287.25 per week.

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JobSeeker vs age pension

Source: Ben Phillips ANU, Services Australia

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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.

Only four think it should revert to $287.25 per week.

All but eight want a substantial increase. More than half (24 out of 45) want an increase of at least $100 per week.

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Economic Society of Australia/The Conversation, CC BY-ND

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The results suggest the economists would be dissatisfied with a decision to merely increase JobSeeker by $75 per week in line with the supplement that is due to expire at the end of March.

The 45 members of the society’s 57-member panel who responded include Australia’s preeminent experts in the fields of microeconomics, macroeconomics economic modelling, labour markets and public policy.

Among them are former and current government advisers, a former member of the Reserve Bank board and a former member of the Fair Work Commission’s minimum wage panel.

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Read more: Top economists back boosts to JobSeeker and social housing over tax cuts in pre-budget poll

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Many want an increase of about $150 a week to bring JobSeeker close to the age pension and 50% of median income.

Curtin University’s Harry Bloch asked (rhetorically) whether unemployed people had “lower needs than those on the aged pension”.

Labour market specialist Sue Richardson said keeping payments so low that people lost dignity and hope and suffered material deprivation hurt not only the people who were unemployed, but also the thousands of children who grew up in their households.

A scant incentive to shirk

She knew of no evidence that suggested a low rate of JobSeeker increased the likelihood of an unemployed person getting a job.

Jeff Borland said even if JobSeeker was increased by $125 per week, those on it would still earn less than all but 1% of full-time adult workers and would face plenty of remaining financial incentives to get paid work.

In research to be published in The Conversation on Monday he examines a real-life experiment: the temporary near-doubling on JobSeeker between March and September, and finds it played no role in creating unfilled vacancies.

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Read more: New finding: boosting JobSeeker wouldn't keep Australians away from paid work

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Emeritus Professor Margaret Nowak said JobSeeker had been driven to the point where it denied unemployed Australians the shelter, food and transport they needed to find work.

Former Liberal party leader John Hewson described the failure to adjust JobSeeker for three decades as “immoral”, and a national disgrace driven by “little more than prejudice”.

Going forward, there was overwhelming agreement among those surveyed that once JobSeeker was restored to an acceptable level, it should be linked to wages (in line with the pension) rather than increase with prices as before.

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Economic Society of Australia/The Conversation, CC BY-ND

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Two thirds of those surveyed want JobSeeker increase in line with wages, and of those who do not, several want the pension to increase more slowly in order to ensure the two move in sync.

Gigi Foster and Geoffrey Kingston propose a half-way house – increases in both the pension and JobSeeker halfway between increases in the consumer price index and wages.

Wages determine living standards

Others suggest practical measures to make JobSeeker better at getting Australians into jobs. Beth Webster suggests reducing the rate at which JobSeeker cuts out with hours worked to encourage part-time workers to take on more hours.

Tony Makin suggests a relocation allowance to help people take on jobs distant from their current place of residence.

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Read more: 'If JobSeeker was cut, the unemployed would be picking fruit'? Why that's not true

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None of the economists surveyed expressed concern about the budgetary cost of restoring the relative position of JobSeeker, estimated by the Parliamentary Budget Office to be $4.8 billion per year for an increase of $95 per week.

Several expressed a desire to put the issue behind them, increasing JobSeeker to a reasonable proportion of the pension or median wage and leaving it there so that, in the words of Saul Eslake, “this issue never arises again”.

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Individual responses

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.

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‘Could do better’: top Australian economists award the budget a cautious pass

Australia’s leading economists have struggled to grade this month’s budget.

Challenged by the Economic Society of Australia and The Conversation to rate it on a scale of A to F when judged by its stated aims of rebuilding the economy and creating jobs, none of the 43 economists who responded gave it the lowest grades of E or F.

But most who gave it a pass were unhappy.

Financial markets expert Kevin Davis praised “the willingness of a conservative government to adopt needed large deficit spending at variance with its ideology”.

Economic modeller and former Reserve Bank board member Warwick McKibbin said he would give it an A for scale.

But Davis said tax cuts “to the better-off employed” weren’t the best way of achieving desired outcomes, and McKibbin said the composition could have been much better designed.

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Read more: It's not the size of the budget deficit that counts; it's how you use it

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“There was an opportunity to invest in green infrastructure as part of a fiscal response and a climate/energy policy response that would have longer-term economic and environmental payoffs,” McKibbin said.

“For spending support, transfers to low income households rather than income tax cuts would have given a bigger bang for the buck. Greater support of childcare would support incomes and labour supply.”

Bob Breunig said the design of the childcare benefit created a well-documented income cliff for second earners making it difficult for them to work more hours. It was a known problem and would have been easy to fix.

Hard hats instead of soft skills

The Grattan Institute’s Danielle Wood said it was “absolutely the right call to change course on fiscal strategy and recognise the need for sizeable stimulus, so marks for that”.

But the budget “very much bet the house on a private sector-led recovery”.

Where it had spent money directly it mostly went to “hard-hat” professions such as infrastructure, construction, manufacturing, defence, utilities and energy.

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Read more: High-viz, narrow vision: the budget overlooks the hardest hit in favour of the hardest hats

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“Some of these sectors haven’t even seen job losses during COVID,” Wood said, and there is already a healthy pipeline of work for transport infrastructure projects, so why spend your stimulus dollars here?“

Renee Fry McKibbin noted that the burden of COVID-19 falls on front-line workers in health, caring industries, hospitality, tourism, arts and education, yet she said the budget focused on sectors "traditionally dominated by men”.

Climate change overlooked

Wood said the price of those blindspots would be a weaker recovery than otherwise, unemployment higher for longer than it could have been, and women’s economic disadvantage entrenched.

Labour market specialist Sue Richardson said relying on incentives such as instant asset write-offs and hiring subsidies was risky because the private sector might not respond in the way that had been hoped.

What direct spending there was seemed “intended largely to recreate the economy of the past, rather than invest in the economy of the future”.

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Read more: Budget 2020: promising tax breaks, but relying on hope

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“The economy of the future will, among other things, need to have much lower greenhouse gas emissions and much greater ability to cope with the unavoidable damage arising from climate change.”

How we handle the recovery will either set us on a path towards net-zero emissions or lock us into a fossil fuel system from which it will be hard to escape.

Saul Eslake gave the government “great credit for being willing, explicitly, to recalibrate its budget strategy” and run up what (for Australia) were large amounts of debt.

On average, a bare pass

But he said the measures chosen would be less effective in delivering jobs and recovery than others available including vouchers for spending in sectors hard-hit sectors and spending on social housing and childcare.

All but one of the 43 economists who responded to the survey also responded to the pre-budget survey which nominated spending on social housing, education and training and permanently boosting JobSeeker as the top budget priorities.

Assessing the budget, 16 of the 43 (37%) awarded it either an A or a B. Almost half (49%) awarded it a C, or “bare pass”. Six (14%) gave it a D.

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The Conversation, CC BY-ND

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Some of the economists who awarded a B said it was really a “B-minus”

One of them, Lata Gangadharan, said when it came to opportunities for women (those worst affected by the downturn) the budget “failed miserably” and would attract a D.

James Morley said he might have been “too easy of a marker” by awarding a B, but that it was “possible to lose the forest for the trees when only evaluating the budget on its specifics”.

‘B’ reflects the big picture, not the details

The big picture was that deficit-financed stimulus was needed and that the budget provided much more than might have been expected given the previous positions of the treasury and the Morrison government.

He said the forward guidance that put off “budget repair” until after the unemployment rate fell below 6% was welcome, even if one could ask why the threshold of 6% number had been chosen.

The more one looks at the details, the more one wants to significantly mark down the grade for budget. But I will still give it a “B” because the big picture is on the right track and I will just hope the Treasurer somehow becomes an “A” student in the future.

Rana Roy said he would have to grade the budget a C rather than an A or B, “more in sorrow than in anger”.

While he approved of the deficits and the tax cuts and the focus on infrastructure, he strongly suspected the measures would not be enough.

“For example, in an immediate sense it is likely that the negative impact of tapering and terminating JobKeeper will overpower the positive impact of the new wage subsidies for new hires.”

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Read more: Top economists back boosts to JobSeeker and social housing over tax cuts in pre-budget poll

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Two of those surveyed awarded the budget a B primarily because it had shown restraint. Tony Makin said too much spending would have pushed up the dollar and drawn resources away from the private sector. Geoffrey Kingston said it was important to avoid “maxing out the national credit card”.

Chris Edmond awarded it a C primarily because its assumptions relied on hope.

By simply assuming a widespread effective vaccine will be available next year and not otherwise thinking hard about how to beat the pandemic, the government is being very optimistic.

Others said it had ignored the one thing recommended by most economists, which was to invest in social housing to make housing affordable and create jobs.

A permanent increase JobSeeker would have given a million Australian confidence in the leadup to Christmas. Higher education, a major export earner with a direct impact on productivity, was being left to shrink.

John Quiggin said the budget pursued “cultural/ideological vendettas against perceived enemies like renewable energy and the university sector”.

But he said it was still worth a C. The government was right to budget for a large deficit, and deserved continuing credit for JobSeeker and JobKeeper.

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Individual responses

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.

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Top economists back boosts to JobSeeker and social housing over tax cuts in pre-budget poll

Overwhelmingly, Australia’s leading economists want the budget to boost social housing and the JobSeeker unemployment benefit rather than bring forward personal income tax cuts.

The 49 eminent economists who responded to Conversation-Economic Society of Australia pre-budget survey were asked to rate 13 options in terms of “bang for the buck” – effectiveness in boosting the economy over the next two years.

Among the options offered were boosting JobSeeker (previously called Newstart), wage subsidies beyond the expiry of JobKeeper, one-off cash payments to households, big infrastructure spending, bringing forward the personal income tax cuts, and company tax cuts.

The options were selected by a committee of the central council of the Economics Society and were presented to each surveyed economist in a random (shuffled) order.

The economists surveyed are Australia’s leaders in the fields of microeconomics, macroeconomics, economic modelling and public policy. Among them are former and current government advisers, former heads of statutory authorities, and a former member of the Reserve Bank board.

Each was asked to nominate the four most effective options for boosting the economy.

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Economic Society of Australia/The Conversation, CC BY-ND

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The most popular option, endorsed by 55% of those surveyed, was boosting spending on social housing.

Monash University econometrician Lisa Cameron said the budget provided an unusual opportunity to fix things for the long term while boosting the economy.

Social housing would leave us with something worthwhile (as did the school hall building program during the global financial crisis) in addition to providing work for the building industry. Alleviating homelessness would be a lasting benefit.

If it goes to the unemployed, it will be spent

The second most popular option, endorsed by 51%, was permanently boosting JobSeeker, previously known Newstart. The temporary boost in the A$282.85 per week payment was wound back last week and will end in December.

Melbourne University economist John Freebairn pointed out that with no real increase in Newstart since 1993 and many on it in demonstrable poverty, every extra cent spent on it will be spent rather than saved.

Supported by fewer than half of those surveyed, but third most popular at 45%, was more funding for education and training.

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Read more: Should the government keep running up debt to get us out of the crisis? Overwhelmingly, economists say yes

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Flinders University labour market specialist Sue Richardson said education was labour-intensive, which would help with employment, and would assist young people severely hit by the pandemic to get the skills they would need to get jobs rather than stay unemployed.

Matthew Butlin, who heads the South Australian Productivity Commission, said the decimation of income from student fees means universities will have less money to subsidise research. There was a case for more direct funding of university research in the form of competitive grants for projects with practical applications.

The fourth most popular option was infrastructure spending, supported by 41%.

Why not a Hoover Dam, a new Opera House?

Many made the point that the projects chosen would have to be worthwhile in their own right, and feared this might not be the case. Others looked to big “nation building” projects along the lines of the Hoover Dam in the United States which was built during the Great Depression and employed 21,000 people.

“Why not building a massive dam in Australia? Why not building a new Sydney Symphony Orchestra building like the Berlin Philharmonie? Why not expand the National Parks? Why not building green libraries all over Australia?,” asked Sydney University’s Stefanie Schurer.

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Read more: Homelessness and overcrowding expose us all to coronavirus. Here's what we can do to stop the spread

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Done right, like the Sydney Harbour Bridge which was completed during the Great Depression, big imaginative projects could leave us with something valuable.

There was less enthusiasm for continued wage subsidies (35%) and an expanded investment allowance (29%) with University of NSW economist Gigi Foster saying investment allowances could be replaced with income-contingent loans along the lines of the Higher Education Contributions Scheme.

That way businesses could borrow to invest, with an obligation to repay if the investment paid off.

If it goes on tax cuts, it might not be spent

The same approach was taken by some to funding higher quality aged care (supported by 31%) and increasing subsidies for child care (29%).

Economic modeller Warwick McKibbin suggested funding child care through income-contingent loans (repayable on the basis of income) rather than subsidies.

Bringing forward the leglislated personal income tax cuts as proposed by the government and cash payments to households were relatively unpopular, supported by 20% and 16%.

Saul Eslake said that while he agreed with the treasurer that early tax cuts would “put money in people’s pockets”, there was no guarantee the high earners “into whose pockets most of that money would be put”, would take it out and spend it in sufficient quantity.

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Read more: Frydenberg is setting his budget ambition dangerously low

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Eslake suggested that rather than supporting households with cheques as happened during the financial crisis, households could be handed time-limited tradeable vouchers that could be spent in areas hurt by restrictions, such tourism and the arts, or used for other worthwhile purposes such as childcare or reskilling.

Among those who did support bringing forward the tax cuts was John Freebairn, who said that although presented as cuts, what was proposed would do little more than restore what had been lost to bracket creep, keeping income tax steady.

Company tax cuts an also-ran

Company tax cuts, once touted by former prime minister Malcolm Turnbull as the key to jobs and qrowth garnered minimal support, being backed by just six of the 49 economists surveyed.

The least popular option, backed by only two economists surveyed, was government support for cleaner fossil fuels such as natural gas, as the prime minister is promising. In contrast 13 (26%) backed support for renewable energy.

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Individual responses

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.

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Australia's top economists oppose the next increases in compulsory super: new poll

The five consecutive hikes in compulsory super contributions due to start next July should be deferred or abandoned in the view of the overwhelming majority of the leading Australian economists surveyed by the Economic Society of Australia and The Conversation.

Two thirds – 29 of the 44 surveyed – want the increases deferred or abandoned. Only 13 think they should proceed as planned.

An even larger majority, including some economists who want the increases to proceed, believe they will hit wage growth. Several are concerned they will hit employment.

Compulsory superannuation contributions are paid by employers.

But ahead of the most recent increase in compulsory super, from 9% of salaries to 9.5% in 2013 and 2014, the then Labor superannuation minister Bill Shorten said the increase would cost employers nothing because it would be taken from wage rises.

“A portion of what would have been employees’ increases will go into compulsory savings,” he said.

That conventional wisdom has since been challenged in work funded by the superannuation industry and has been examined extensively in the retirement income review at present with the government.

The two most recent increases in compulsory superannuation in 2013 and 2014 were small by design – 0.25% of salary each.

The next five increases, originally due to due to begin in 2015 but postponed to start in July 2021, are much bigger – 0.5% of salary each – at a time when wage growth is much smaller.

In 2012 Shorten was expecting wage increases of 3-4% and “assuming that a quarter of a per cent of that 3% to 4% may well go into your compulsory savings”.

Wage growth has since slipped to 1.8%, the lowest on record. If the best part of 0.5% is taken out of that each year for the next five years it is unlikely to climb.

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Wage growth has slipped to 1.8%

Wage Price Index annual growth, public and private, all industries, seasonally adjusted. ABS 6345.0

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The 44 members of the Economic Society’s 57-member panel who responded include Australia’s preeminent experts in the fields of microeconomics, macroeconomics economic modelling, labour markets and public policy.

Among them are former and current government advisers and a former head of the Australian Fair Pay Commission and member of the Reserve Bank board and a former member of the Fair Work Commission’s minimum wage panel.

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Read more: 5 questions about superannuation the government's new inquiry will need to ask

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Each was asked whether the legislated increases in compulsory super contributions should proceed as planned, be deferred or be abandoned.

Only 13 of the 44 thought the increases should proceed as planned. 29 thought they should be deferred or abandoned, nine of them preferring they be abandoned altogether.

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Those who thought they should be deferred argued that now is “not a time to encourage saving”. In the current circumstances we should be “far more worried about spending power today than in the golden years of present-day workers”.

Economist Saul Eslake said he had changed his mind. The latest evidence (which will be updated in the retirement income review) suggests that the current 9.5% so-called super guarantee will be enough to provide most people with an adequate income in retirement .

“In saying that I acknowledge that there is still a significant problem with regard to the adequacy of superannuation savings for women relative to men, but I don’t see how raising the super rate for everyone to 12% solves that problem,” he said.

“Not a time to encourage saving”

Economic modeller Janine Dixon said it was not clear that the optimal contribution was 12% rather than 9.5%. The increase would force some households into greater debt. While this would pose a risk to economic stability at any time, Australia could “not afford to let the household sector weaken further at present”.

Economist Geoffrey Kingston said anyone who felt 9.5% was not enough remained “free to make voluntary contributions”.

Among those believing the increases should proceed as planned were two former politicians, Labor’s Craig Emerson and former Liberal leader John Hewson.

Emerson said 9.5% was “considered inadequate by the burgeoning retiree population”. Without an increase, that population “would successfully demand increased pension levels from the Commonwealth”.

Opponents more confident

Hewson said compulsory super had become a fundamental part of an effective retirement incomes strategy and, COVID and economic collapse notwithstanding, we should “finish the job”.

Sue Richardson, a former member of the Fair Work Commission’s wage panel, believed any deferral might lead to another deferral and be “hard to recoup”.

The economists were asked to rate their confidence in their responses on a scale of 1 to 10.

Unweighted for confidence, 20.5% of those surveyed wanted to abandon the increases altogether. When weighted for confidence, that proportion climbed to 21.6%. The proportion that wanted the increases either deferred or abandoned climbed to 67.1%

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Asked whether the increases were likely to be largely paid for via slower wage growth than otherwise, 30 of the 44 economists agreed. Only eight disagreed.

Economist Nigel Stapledon said this “should not be controversial”.

Private sector economist Michael Knox said: “unless one lives in an unreal world, increases in superannuation guarantees are funded by employers out of the total wage the worker might otherwise receive”.

Super and wages come from the same pool

Several enterprise bargains explicitly make a trade-off between wages and superannuation, providing for wage increases that will be 0.5 points higher should compulsory super contributions not climb by 0.5 points.

Economist Alison Booth said if employers weren’t able to trim wage rises to pay for the scheduled increases in super contributions, they might “attempt to adjust on other margins”.

In a recession, when workers lack bargaining strength, “employers could coerce them to accept other adjustments to their contracts”.

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Two of the eight economists who disagreed with the proposition that the increases in compulsory super would come at the expense of wages thought that employers wouldn’t grant wage rises anyway. Increases in super contributions might be one way for employees to get something.

A concern among both those who agreed and disagreed was that if the increase didn’t come at the expense of wages, it would push up the cost of hiring and come at the expense of jobs.

“Inflation is very likely to be very, very low and wages to be sticky,” said government advisor Matthew Butlin.

A drag on jobs if not wages

“Higher superannuation payments in an environment where wages are unlikely to rise and cannot fall will raise real labour costs and reduce the incentive to employ.”

Economic modeller Janine Dixon said that while over time the increase in contributions would probably come from wages, the immediate impact would be to increase the cost of hiring, “which is an unacceptably large risk in the present climate”.

When adjusted for confidence, the proportion of those surveyed expecting the increases to largely paid for via slower wage growth climbed from 68.2% to 71%. The proportion disagreeing fell from 18.2% to 17.8%.

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Individual responses

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.

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Should the government keep running up debt to get us out of the crisis? Overwhelmingly, economists say yes

Overwhelmingly, the 50 leading Australian economists surveyed by the Economic Society of Australia and The Conversation ahead of Thursday’s economic statement want the government to keep spending to support the economy — even if it means a substantial increase in debt.

The question is the third asked in the Economic Society-Conversation monthly poll, which builds on a series of polls conducted by the society since 2015.

The economists polled were selected for their preeminence in the fields of microeconomics, macroeconomics, economic modelling and public policy. Among them are former and current government advisers and a former and current member of the Reserve Bank board.

Each was asked whether they agreed, disagreed, or strongly agreed or strongly disagreed with this proposition:

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

Only three of the 50 economists polled disagreed with the proposition, none of them “strongly”.

It is one of the starkest results in the survey’s five-year history.

The Conversation, CC BY-ND

Of the 50 economists polled, 44 supported the proposition, 33 of them “strongly”.

Of the remaining six, three were uncertain, and provided well-argued accounts of their reasoning which are published in full along the responses of each of the other participants at the bottom of of this article.

Debt now, concern later

Rachel Ong of Curtin University said the amount of public debt that has accumulated during the COVID-19 crisis was at a historical high and had to be repaid at some point. But she said governments had to be careful about removing support until the economy was clearly on a trajectory of recovery.

Nigel Stapledon of the University of NSW said while some level of on-going support was needed, at some point the cost would be larger than the benefit. Some sectors, including universities, will have to permanently adjust to lower incomes.

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Read more: Bowing out gracefully: how they'll wind down and better target JobKeeper

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The economists who strongly agreed said that if not enough support was provided or if it was withdrawn too early, the resulting recession would itself make the debt that had been run up less sustainable (Fabrizio Carmignani, Griffith Business).

Financial markets are keen to lend

Beth Webster of Swinburne University argued the only real limit to government spending was high and damaging inflation.

If the government was worried about debt, it could finance its spending in other ways, by borrowing from the Reserve Bank (which could itself create money and “monetise” the debt).

Sue Richardson from the University of Adelaide agreed, using a technical term to argue that the was economy was “so far inside its production possibility frontier” (producing so much less than it was capable of) and inflation was so dormant, that there was a case for creating money.

Saul Eslake said that wasn’t necessary. Even with the hundreds of billions committed, financial markets appeared to be comfortable with the debt and keen to lend.

Debt is how we do things

Reserve Bank board member Ian Harper said the Commonwealth could borrow for 30 years at about 1%. “Can we expect the economy to grow faster than 1% per annum in nominal terms over a 30-year horizon?” he asked rhetorically. “I would have thought that’s a shoo-in,” he answered. If so, then the debt would be easily serviced.

Consulting economist Rana Roy pointed out that public debt was “not an anomaly”. It was an enduring and defining feature of the modern economy, providing an enduring and defining asset class, sovereign bonds, which were in high demand.

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Read more: Australia's first service sector recession will be unlike those that have gone before it

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Of the three economists who opposed the proposition, Tony Makin of Griffith supported “supply side” measures such as JobKeeper that would keep firms in business but opposed “demand side” measures to boost consumer spending, saying they would ultimately prove counterproductive.

Escalating public debt would induce capital inflow, drive up the dollar and make Australian businesses less competitive. Although interest rates are at present low, they would increase when the debt had to be refinanced.

Doubts for differing reasons

Paul Fritjers of the London School of Economics said he would normally support running up government debt for the sake of the economy, but could not support it being run up to support an economy the government itself had run down.

The government should wean the population off of its “irrational fears” and letting “normal economic life return”.

Although strongly argued, these views were more weakly held than those of the majority.

The Conversation, CC BY-ND

Participants were asked to rate the confidence with which they held their opinions on a scale of 1 to 10.

When adjusted for these ratings, the proportion prepared to countenance a substantial increase in public debt climbed from 88% to 92.1%.

The proportion opposing it fell from 6% to 4.6%.

Tommorrow’s economic statement will be the last budget and economic update before the budget itself on October 6.

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Individual responses

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

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