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





Wes Mountain/The Conversation, CC BY-ND

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

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.






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

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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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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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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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.


Individual responses

The Conversation

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.


Responses (149)


 

A Abigail Payne

Expanded investment allowance, Social housing, Incentives for renewable energy, More funding for education and training

What has 2020 revealed to us? In January we were reminded of the serious complications to life with increasing temperatures and the importance of addressing climate change. The pandemic and resulting recession has reminded us of the fragility of the economy and the importance of caring for our neighbours that may live in disadvantage. The changing of the economy stresses the importance of being nimble and ambitious in education and training beyond high school.


 

Alison Booth

Infrastructure projects, Social housing, Incentives for renewable energy, Increasing subsidies for child care


 

Allan Fels

Expanded investment allowance, Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing

The question is narrowly framed as to which intervention would have the biggest stimulatory effect.Probably the answer is direct government spending done immediately. But policy should be broader than that and treating the stimulus effect as just one albeit major factor So my answer is partly conditioned by wider policy considerations . Social housing is top of my list


 

Beth Webster

Expanded investment allowance, Social housing, Incentives for renewable energy, Funding higher quality aged care

The COVID stimulus is a great opportunity to focus on areas that have been neglected in the past. There are two areas: first, aged care and social housing (the need being well illustrated by the excessive COVID infection rates) and second, spending that is vital for future prosperity such as renewable energy and investment into new technologies under the industry 4.0 umbrella. The latter is important to enable Australia to hedge against unreliable supply chains and to broaden the range of foreign customers.


 

Brian Dollery

Bring forward legislated personal income tax cuts, One-off cash transfers to households, Infrastructure projects, Social housing


 

Chris Edmond

One-off cash transfers to households, Expanded investment allowance, Wage subsidies or hiring bonuses (beyond JobKeeper), Increasing subsidies for child care


 

Craig Emerson

Expanded investment allowance, Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, More funding for education and training, Increasing subsidies for child care

The job-search component of the old Newstart will need boosting to facilitate what will be a far more difficult process of seeking work, with so many jobseekers chasing so few jobs. Reform of the Child Care Subsidy is essential to reducing the punishing workforce disincentive rates of 75-120 per cent confronting working mothers who want to help repair household budgets. Australia's universities are being smashed by the restrictions on the entry of international students, with the UK and Canada enjoying a big advantage by flying in students, decimating Australia's third-biggest export industry. An expanded investment allowance that could later be converted to a cash flow tax would greatly increase investment incentives at a time when productivity-raising investment will otherwise be deeply depressed.


 

Danielle Wood

Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Funding higher quality aged care, Increasing subsidies for child care

It's hard to choose just four because the reality is that there should be a significant fiscal package. As Australia moves out of lockdowns and the emergency fiscal supports come off - the priority is boosting aggregate demand to create jobs. The quantum is important - as Grattan has shown, it will need to be large enough to meaningfully bring down unemployment and boost households and business confidence. I've chosen age care and childcare spending rather than infrastructure (although social housing would also be high on my list) because government consumption spending is likely to have a bigger multiplier at the zero lower bound. It also better targets jobs for the groups hit hard by lockdowns - women and young people and would deliver desperately needed service improvements, particularly for aged care. Making childcare more affordable is also important because it means families that have lost jobs or hours are more likely to be able to keep their place giving them more capacity to pick up work as labour markets improve. Well-designed wage subsidies or hiring bonuses provide an incentive for firms to expand their payroll and provide a good return per dollar spent. They can be targeted at particular hard hit sectors (like hospitality, tourism and the arts) or groups (young people). Finally, increasing the permanent rate of Newstart needed to happen even before coronavirus - any number of groups have made the point that it was punishingly low and left recipients well below the poverty line (however measured). Of course work incentives matter but the rate was so low that it was counterproductive - interfering with job search and job readiness. Boosting the payments now would also be good stimulus because we know that every dollar will hit the economy.


 

Deborah Cobb-Clark

Expanded investment allowance, Wage subsidies or hiring bonuses (beyond JobKeeper), Infrastructure projects, Social housing

My view is that the best options for supporting economic recovery are those which target employment growth and the creation of new jobs. This includes supporting large public infrastructure projects (including social housing) and facilitating job creation in the private sector through wage subsidies and incentives to invest.


 

Emily Lancsar

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, More funding for education and training, Increasing subsidies for child care

My preference order is driven by the twin aims of stimulating aggregate demand in the economy to support the recovery and addressing key economic and social issues that existed prior to and further highlighted by the pandemic to bring about longer term economic and social benefits. For example, in addition to stimulating aggregate demand, a permanent boost to JobSeeker will keep a large proportion of Australians from falling below the poverty line (see recent Phillips, Gray, Biddle work) with the many associated health, education etc. benefits; increasing subsidies for childcare is expected to increase workforce participation and is an investment in early childhood education with associated longer term benefits to productivity, health, etc.; social housing is targeted infrastructure investment with multiple positive spillover effects in education, mental health, homelessness etc.; more funding for education and training is also an investment in the generation who will bear the costs of the considerable public debt currently being accrued.


 

Fabrizio Carmignani

Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, More funding for education and training

There are of course many possible, valuable combinations of actions that the government can undertake. I therefore prefer commenting on what, in my view, the government should not do, and that's corporate tax cuts. This always seems to be the preferred solution to any economic problems: cut taxes on corporates and the benefits will trickle down to the rest of the economy. Unfortunately, it is not that easy, the evidence of trickle down effects is very limited, and if anything there is evidence that there is in general no trickle down. Also, the evidence on the association between corporate tax rates and macroeconomic performance/labour market performance is far from conclusive. Ultimately, the argument to support corporate tax cuts is not well grounded theoretically or empirically. In relation to personal income tax cuts, the point there is to ensure progressivity. Evidence suggests that personal income taxation in Australia has become less progressive since the GFC, hence it would be appropriate for the government to consider changes that strengthen progressivity.


 

Flavio Menezes

Expanded investment allowance, Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects

Sustaining incomes and jobs has been and will continue to be key to avoiding a deeper downturn. In terms of the economic recovery, government funding should focus in areas where it will not crowd out private investment: some infrastructure (e.g., broadband in particular areas, transport), health, aged care, social housing and education. Picking ?winners? to subsidise is to be avoided ? a superior approach for achieving an appropriate emissions reduction goal is to establish a carbon price. Such a price will incentivise investment in lower emissions electricity generation. Finally, the time is right for tax reform that promotes private investment. However, reducing the corporate tax rate is not the right approach. Instead a cash flow tax is the way to promote equity investment and innovation.


 

Garry Barrett

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Incentives for cleaner fossil fuel energy, Funding higher quality aged care


 

Geoffrey Kingston

Bring forward legislated personal income tax cuts, Corporate tax cuts, Expanded investment allowance, Funding higher quality aged care

I ticked all the tax-cut options because these would help build up the supply side of the economy. For example, business investment has languished for years. By contrast, options such as infrastructure projects would theoretically build up the supply side yet tend in practice to get diverted by the politicians into comparatively unproductive projects such as inland rail and Snowy 2.0. I ticked the aged-care option because nursing homes need more resources for things such as ensuring minimum ratios of qualified staff to residents and enabling staff to make a decent living without working in multiple facilities. US research has identified working in multiple facilities as a major spreader of the virus. More generally, the public spending choices of the federal government during the next two years need to prioritize the avoidance of second and third waves. For example, Canberra will need to avoid Victoria's mistake of prioritising general pay rises for public servants over providing adequate resources for tracing. Not only is there the public health issue, but funding adequate tracing is as good an option as any for "supporting economic activity for an intervention of a given size."


 

Gigi Foster

Expanded investment allowance, Social housing, Funding higher quality aged care, Increasing subsidies for child care

By "increasing subsidies for child care" I have in mind investments towards the universal provision of free high-quality, accessible childcare to all Australian families. By "social housing" I have in mind interventions to encourage the more efficient use of existing housing stock - such as providing incentives for empty-nest families to move out of large homes, and for young people to house-share - and also investment in a particular type of what could be termed local infrastructure, such as subsidies for the construction of well-located, lower-rent high- and mid-rise apartment blocks targeted to younger and lower-income segments of the population. By "funding higher quality aged care" I mean investments into discovering what works best to support quality and quantity of life for elderly people, and implementing these changes (which may include changes in the training of workers in the aged-care industry) together with changes as necessary to the government-run long-term-care financing scheme. By "expanded investment allowance" I mean adopting a well-designed small-scale HECS-like loan scheme for small and medium-sized businesses to encourage these businesses to invest with minimal downside risk over the next 6 to 12 months. The first two of these interventions are intended to boost aggregate demand in the short run; the first three, to invest in the longer-run productivity and wellbeing of Australia; and the fourth, to support the supply side of the economy in the short to medium term until demand recovers. However, the best thing the government could do with its money to help the economy right now is to buy border re-openings from whoever is responsible for keeping Australia's domestic and international borders shut. Obviously there is no direct market for this, but there is for sure an indirect (politically-mediated) market.


 

Guay Lim

Bring forward legislated personal income tax cuts, Corporate tax cuts, Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects


 

Harry Bloch

Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Funding higher quality aged care, Increasing subsidies for child care

Stimulating consumer demand should be the highest priority, especially the demand for services that has fallen off dramatically during the pandemic. This can be achieved by increasing the income flow to unemployed and low-wage workers, who have high propensities to spend their extra income. Attempts to boost investment spending through investment incentives or cutting corporate taxes, are less likely to be effective when there is ample excess capacity in the economy. Cash handouts and personal tax cuts may be largely saved unless very carefully targeted to groups who are most likely to spend.


 

Helen Silver

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Incentives for renewable energy, More funding for education and training, Increasing subsidies for child care

The aim of the priorities is to increase female workforce participation, increase skills capabilities (especially digital skills) , increase consumption of low income households and investments in lower energy emissions.


 

Hugh Sibly

Wage subsidies or hiring bonuses (beyond JobKeeper), Infrastructure projects, More funding for education and training, Funding higher quality aged care


 

James Morley

One-off cash transfers to households, Incentives for renewable energy, More funding for education and training, Increasing subsidies for child care


 

Janine Dixon

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, More funding for education and training, Increasing subsidies for child care

I've chosen four options that reduce the barriers to work, by reducing the impacts of poverty, and in the case of child care subsidies, reducing the effective marginal tax rate. More funding for education and training is important at all levels, but particularly for universities that have seen a large fall in revenue from the international student cash cow. Runner up is "incentives for renewable energy" - it is enormously important that we take action to avoid catastrophic climate change - but as the question asks about the next two years only, it doesn't make the top four.


 

Jeff Borland

Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Funding higher quality aged care

Many (most) of these policy options would be worth doing. I have chosen my 4 options with two considerations in mind: (i) Programs that will best promote immediate job creation (and jobs of a type that will have most benefit given the likely characteristics of jobseekers - eg., hiring credits targeted at young jobseekers) (ii) Programs that will also achieve important social objectives where urgent progress is needed - ie., improving quality of aged care, increase in access to social housing, raising living standards of JobSeeker recipients. (Addressing climate change is also urgent - But since I can only choose four options from the list I'll suggest that it can instead be responded to by removing/not introducing new government support for non-renewable energy sources.)


 

Jeffrey Sheen

Expanded investment allowance, Wage subsidies or hiring bonuses (beyond JobKeeper), More funding for education and training, Funding higher quality aged care

Moving into the next phase of government support, the focus should be on those sectors that suffered the most from the pandemic and lockdown, and on interventions that can easily be tapered when normality returns. More aged care quality spending should aim to moderate the perceived mortality rate of the virus and thus enable the earlier relaxation of public health controls. Education and training spending is an excellent counter-cyclical investment in human capital needed to address youth unemployment that jumped significantly in 2020. JobKeeper (or a future derivative) remains vital, albeit on a transparent tapering schedule. Continuing to encourage firms to invest through accelerated depreciation allowances will help stimulate production and employment in the next two years.


 

joaquin vespignani

Bring forward legislated personal income tax cuts, Infrastructure projects, Incentives for renewable energy, More funding for education and training

At this stage of the crisis, is important to consider mid-term policies such as heavily investing in tertiary education to upskilled the labour force. This will be both, efficient (in terms of resources reallocation), but also fair in terms of intergenerational equality. This is because people who get the benefit of upskilling themself will contribute to higher income and taxes in the future.


 

John Freebairn

Bring forward legislated personal income tax cuts, Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, Social housing

Boost JobSeeker. Plus: equity with no real increase since 1993 and many on Newstart in poverty; aggregate demand stimulus with marginal propensity to consume close to unity. Exceeds downsides: for some an added disincentive to seek and accept employment; additional long term budget cost. Infrastructure projects. Important, assume project choice involves choice of longer term beneficial projects with evidence of explicit, transparent and public available business case assessment (rather than ad hoc political choices like "sports gate"). Then plus: short and medium term stimulus to aggregate demand, and in large part for resources previously allocated for capital for population growth largely driven by immigration; longer term contribution to national productivity for higher living standards and capacity to repay debt. Social housing. Plus: short to medium term stimulus to aggregate demand, and much directed at resources previously allocated for private housing for a larger population driven by immigration; contribute to equity, and perhaps to longer term productivity of many disadvantaged members of society. Bring forward legislated personal income tax reductions. In reality, the changes primarily offset the failure to index tax brackets, and in the process restore personal income tax as a share of the economy and retain similar marginal and average effective tax rates. Plus: maintain incentives for employment, saving and investment; some stimulus to aggregate demand, and for portion saved a reduction in very high household debt to income ratios. If more income tax revenue is required, reform for a broader and more comprehensive tax is a better option than allowing effective tax rates to rise with inflation.


 

John Hewson

Expanded investment allowance, Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Increasing subsidies for child care

Budget needs meet two objectives - short-term, to stimulate through the phase down of existing support and longer-term to set a framework for a sustained recovery by addressing the many structural challenges that had been consistently "kicked down the road" pre-COVID


 

John Quiggin

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Incentives for renewable energy, Funding higher quality aged care

1. Focus on employment intensive measures which also address unmet needs highlighted by the pandemic. 2. My support for renewable energy reflects the fact that this is a negative cost item. In the absence of a carbon price, we are effectively taxing renewables.


 

Ken Clements

Bring forward legislated personal income tax cuts, Corporate tax cuts, Infrastructure projects, More funding for education and training


 

Kevin Davis

Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Incentives for renewable energy

It is difficult to judge the options solely on an economic stimulus basis - they have very different distributional effects. The problem with personal tax cuts is that they are likely to be structured in a way that provides most gains to those less in need (higher income groups) and with less impact on expenditures. Likewise, corporate tax cut arguments ignore the effect of dividend imputation in offsetting company tax - except for foreign companies/investors - so there is limited likely stimulus. Infrastructure expenditure could have merit if it was labour intensive projects - but that seems unlikely,


 

Lata Gangadharan

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, Incentives for renewable energy, More funding for education and training

Infrastructural projects and funding for education and training are great (long term) ways to support a sustained economic recovery. In terms of short term measures: boosting jobseeker would help. This is also a good opportunity to fund projects which use renewable energy so that the economic recovery is environmentally friendly.


 

Lin Crase

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, Social housing, Funding higher quality aged care


 

Lisa Cameron

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, Incentives for renewable energy, Funding higher quality aged care

This budget, in the wake of COVID-19, is an unusual opportunity for the government to take a long term perspective while stimulating the economy. Bold decisions can be made that will have significant impacts on the future of the country. I am opposed to a predominant focus on tax cuts as they disproportionately advantage the wealthy, reduce public revenue and do not contribute to the long term stability of the community and country. Tax cuts are unimaginative policy. They do not take the opportunity that COVID-19 presents. In contrast, investing in infrastructure, including social housing and renewable energy, paves a way for long term growth, while meeting targets other than just purely economic targets. These initiative boost the economy through construction, and in the case of renewables, innovation. Social housing provides something invaluable to the less well-off in our community. Having spent considerable time in the US, I am disturbed to see Australia going down the same path of increasing homelessness. For this reason I also support a permanent increase to NewStart (JobSeeker). Chanelling funds to the least well-off stimulates the economy in the same way tax cuts do (through greater expenditure) while contributing to a more cohesive society. The state of aged care in Australia is also very worrying and the budget is an opportunity to right this wrong. Funding of aged care should include greater funding for government regulation and monitoring of aged care to reduce the exploitation and profit-skimming of some private providers. Finally, female employment has been disproportionately affected by COVID-19 and I would like to see this addressed in the budget through support for sectors beyond construction.


 

Margaret Nowak

Expanded investment allowance, Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, Social housing

Given that the current economic situation is the direct effect of the crash in spending by both consumers and business in the wake of disruption and uncertainty stemming from COVID 19, the policy response needs to have the maximum impact on direct spending. Each of the policies I selected will directly affect spending in a positive way. One off cash payments would also be spent but do not have continuing positive impact. The expanded investment allowance would support the growth in capacity and productivity in the private sector and create potential for business growth and thus employment. Expenditure on social housing both boosts direct spending and creates social benefits through supporting the health, employment prospects and family welfare of those growing numbers of Australians in housing stress. The permanent boost to jobseeker will have similar impacts on family welfare and employability of recipients. At the same time it underpins society's implicit contract with working Australians, which allows the private sector to shed employees but implicitly accepts there is a social contact that society as a whole will not "discard", but will support the welfare of those so affected. Infrastructure projects provide direct employment potential while, if well selected, hold the promise of increasing productivity and improving living conditions of the community. Each of these I have selected to have maximum impact on spending within the economy and thus on employment and employment recovery. Neither tax cuts for individuals nor corporate tax cuts can be assured to be spent and thus increase employment while they would have a detrimental impact on equity. Policy in relation to cleaner energy, while critical and urgent, requires a clear climate policy direction from government but does not necessarily require government taxpayer dollars for the private sector to act.


 

Matthew Butlin

One-off cash transfers to households, Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, Social housing

Given the large hit to higher education exports and its consequential impact on university own funding for research, I would also include a boost to research funding, with particular attention to competitive grants and translational research.


 

Michael KNOX

Bring forward legislated personal income tax cuts, Corporate tax cuts, Expanded investment allowance, More funding for education and training

We accept the view of New York Fed economists Bram and Dietz (April 2020) that this is a global natural disaster not a global recession . There has been enormous addition to demand through fiscal deficits from Government and quantitative easing from Central Banks. The problem is to restore supply . Expanded investment allowances ,corporate tax cuts and bringing forward higher income tax cuts will all act to increase investment. This restores aggregate supply. Additional training expenditure for technical and vocational training also does the same. When comes the time that China imports its mineral resources from newly developed provinces in West Africa, then a lower corporate tax rate will be essential to attract international business to locate in Australia rather than the many other countries with lower corporates tax rates.


 

Nigel Stapledon

Wage subsidies or hiring bonuses (beyond JobKeeper), Infrastructure projects, Funding higher quality aged care, Increasing subsidies for child care

Given the source of the crisis, and the need to protect the aged while allowing the rest of the economy to operate more normally, more money to aged care seems desirable. Given the downsides of working from home, more funding for childcare, seems desirable on a number of fronts. Given the large (share of the COVID) cost imposed on a minority (businesses), some extension of Jobkeeper is warranted. This helps a broad spectrum but particularly sectors hard hit (eg hospitality) and increases the chances that these businesses can revive. Still needs to be withdrawn as need recedes. Given the sharp decline happening in construction activity which will only worsen in 2021, some temporary boost to construction via infrastructure would be desirable.


 

Paul Frijters

One-off cash transfers to households, Social housing

For the government to build affordable social housing is a good policy at almost any time, but particularly now with high unemployment. One-off transfers help reduce inequality and are a form of welfare increase, which is not too bad at this time. All the other 10 are either counter-productive because they simply mean more problems down the line, or they happen to be useless at this point in time. By far the best thing to do is to lift lock downs, travel restrictions, and social distancing rules, which do much more damage than any measure can repair. There is little point at providing band-aids whilst continuing to saw off the leg.


 

Peter Abelson

One-off cash transfers to households, Wage subsidies or hiring bonuses (beyond JobKeeper), Social housing, Increasing subsidies for child care

I was reluctant to respond because the criterion set - raising economic activity in the next two years - is a narrow one and does not explicitly incorporate short (or long-term) social objectives. Answers that fail to recognise more than one narrow short-term objective could distort decision making. My responses are based on social values as well as economic activity. And I assume that one-off cash transfers would be income related.


 

Peter Sheehan

One-off cash transfers to households, Wage subsidies or hiring bonuses (beyond JobKeeper), Infrastructure projects, Social housing

Assuming that the nation moves to 'COVID normal' by the end of 2020 and that the JobKeeper program is terminated at the end of March 2021, my judgement is that the main constraints on the recovery will be demand and the household income to support that demand. Hence I support measures with a fairly immediate impact on demand (social housing, one-off payments to households, wage subsidies and infrastructure) which don't have a long term cost to the budget. Measures with delayed effects on demand but long term budget cost (personal or corporate income tax cuts or an expanded investment allowance) should be avoided. The shift to renewable energy and cleaner fossil fuels is being driven by technology change and the market, and does not need further incentives). Many of the other measures are highly desirable, but not top priority for the economic recovery.


 

Bring forward legislated personal income tax cuts, Social housing, Incentives for renewable energy, More funding for education and training

Policies supporting economic recovery should target both a short-term boost to spending and long-term gains in productivity. Bringing forward legislated tax cuts should boost spending by consumers while promoting incentives to work (as opposed to increasing government cash transfers, which will likely blunt work incentives). Because tax cuts will benefit high-income earners more than low-income households, this can be offset by also investing in social housing construction which will be targeted at bring housing stress relief to low-income households while providing an immediate boost to construction activity. Funding for education and training will support long-term productivity gains. It is also critical for mitigating against human capital depreciation among those experiencing persistent unemployment in a weak economy. The present economic environment presents an opportunity for the government to channel resources into supporting new industries that are growing in importance and visibility in Australia, including the renewable energy industry.


 

Rana Roy

Bring forward legislated personal income tax cuts, Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects

My vote consists of two parts. First, I would nominate the option of infrastructure projects. This ought to be a current priority for the Australian Government (and governments elsewhere) because of the potency of infrastructure investment as a Keynesian counter-cyclical instrument. And it ought to remain a continuing priority for the Australian Government (and the governments of all the Anglophone countries) because of the very high social returns that are now available as a result of decades of under-investment. I have published extensively on the subject since my time as Chief Economist of the European Commission?s think-tank on infrastructure, when the European Union did succeed for a period in addressing its inherited infrastructure deficit. Interested readers can consult a user-friendly summary of my views on the subject, as well as that of my critics, in the Summer 2008 issue of the Journal of the Transport Economists? Group. Next, I would nominate ? simultaneously and indivisibly ? the three options related to supporting the incomes of workers, be they fully employed, fully or partially furloughed, newly employed, or newly unemployed: (1) ?bringing forward legislated personal income tax cuts?, (2) ?wage subsidies or hiring bonuses (beyond JobKeeper)?, and (3) ?permanently boosting JobSeeker (Newstart) beyond December 31, 2020?. And here I would commend to the reader the excellent recent note, of 18 September 2020, by Belinda Allen of the Commonwealth Bank?s Global Economic and Markets Research team. Allen argues that the temporary stimulus measures provided by the Government in 2020 have, temporarily, interrupted an underlying trend that now needs attention. Between 2016 and 2019, real household disposable income growth averaged just 1.4%. The share of gross income claimed by tax rose from ?a low of 11.8% in Q2 10? to ?a high of 15% in Q4 19?. And current and prospective pay cuts and wage freezes are now threatening to ?take real wages growth into negative territory?. Against this background, bringing forward the legislated income tax cuts will ?allow time for the Australia economy to heal?. Allen is right to argue that ?a permanent shift higher in income, brought about by a structural change, is more likely to incentivise households to deploy savings and spend?. By my calculation, however, the ?permanent shift higher? can and should be applied by means of each of these three options: not only the legislated tax cuts but also wage subsidies as a follow-up to Jobkeeper and an increase in the Newstart allowance. In regard to wage subsidies, the Australian Government would be well-advised to ignore the anecdotal chatter about ?zombie jobs? and to pay heed rather to the now considerable international evidence-base on the subject and in particular to what the IMF calls the ?gold standard? of this policy instrument, the German Kurzarbeit scheme. In regard to Newstart, there is now a near-universal consensus of opinion in favour of increasing it permanently above its pre-March 2020 level, even if there is not a universal agreement on what precisely the new level should be. I endorse this consensus. My final argument relates to the indivisibility of these three options. In my judgement, it is an error to advocate in favour of a permanent increase in Newstart, let alone an increase up to or above its post-March 2020 level of $28,990 per annum, at the same time as arguing against wage subsidies and the legislated cuts to income tax, including the reduction of the tax rate applying to incomes between $37,000 and $45,000 per annum. There are relativities here that need to be respected: society is obliged to compensate people for working, relative to not working; working full-time, relative to working part-time; working overtime, relative to working normal full-time hours; and working under onerous or dangerous conditions, relative to working under standard conditions. And it is a false egalitarianism that insists on maintaining a marginal tax rate of 37% on incomes above $90,000 per annum, including here the incomes of the mine workers who produce the iron ore that sustains the standard of living of all Australians, whilst leaving untaxed the unearned incomes, the inheritances and economic rents, that are the foundation of the wealth of the genuinely wealthy. Be it noted that ?the 25 richest Australians have added $25 billion to their combined wealth during the COVID-19 pandemic? ? with Australia?s richest person adding $6 billion over this period to take her total wealth up to $22.25 billion (see The Weekend Australian Business Review, September 19-20, 2020). In the context of the present moment, it seems peculiarly inapposite to argue against tax cuts for workers on seemingly egalitarian grounds.


 

Richard Holden

Bring forward legislated personal income tax cuts, Corporate tax cuts, Wage subsidies or hiring bonuses (beyond JobKeeper), More funding for education and training

We need to be working on both the demand side and supply side as the virus comes under control. It would be a mistake to underspend on fiscal measures, but also a mistake not to use this moment to make our tax rates more competitive.


 

Robert Breunig

One-off cash transfers to households, Infrastructure projects, More funding for education and training

It's not clear to me that the question is the right question. I would happily have policies that led to greater economic growth over 20-30 years even if they had little impact in the next two years.


 

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, More funding for education and training, Funding higher quality aged care

Actually my first priority, had it been on the list, would have been time-limited but tradeable vouchers to households that could be used for spending in areas that were still adversely affected by on-going restrictions (most obviously tourism or the arts), areas that could help achieve other important objectives (eg child care, so as to help increase female work force participation), specified areas of education or training (so as to assist people whose skills had become redundant as a result of Covid, or who didn't have any to begin with, to acquire skills that would enhance their job prospects in the post-Covid economy), or perhaps to pay electricity bills or other essentials. But that wasn't on the list! Nor, regrettably, was the idea of replacing tax preferences for small businesses, just because they are small, with (more generous) tax preferences for new businesses. Note bringing forward tax cuts wasn't on the list: because although I agree with the Treasurer that doing so would "put money in people's pockets", there's no guarantee that the people into whose pockets most of that money would be put, would take it out and spend it in sufficient quantity to give the same stimulus value for the total cost as could be obtained in other ways. Nor did I include corporate tax cuts, because there's no evidence from countries where that's been tried (eg the US) that result in anything other than increased executive remuneration or share buy-backs: and in any case if Biden wins the US elections (as I fervently hope he does), he will reverse Trump's corporate tax cut (unless the Republicans retain control of the Senate) and one of the main arguments used by proponents of cutting the corporate rate will no longer be relevant. The Government's argument that social housing is the responsibility of the states is a red herring, because most of the spending on social housing which states do is already funded by grants from the Feds under the National Affordable Housing Agreement. I would have put infrastructure projects on the list if I'd been allowed to pick 5, but I agree with Grattan's Marion Terrill that the business cases for some of the hitherto-favoured mega urban transport projects should be revisited in the light of lower population growth projects: and also with Phil Lowe's advice that a lot of little infrastructure projects would do more to underwrite sustainable economic recovery than a handful of big ones.


 

Stefanie Schurer

Infrastructure projects, Incentives for renewable energy, Incentives for cleaner fossil fuel energy, More funding for education and training

Australia would fare well if it adopted a New Deal type of investment strategy in its next budget to buffer the economic crisis and increase employment opportunities. Crisis spending should be used to invest in human capital development (education & training), large, socially-valuable infrastructure projects and in future-oriented industries. All of these investments will generate high returns in the future, while picking up the unemployed from the streets. Wage subsidies or cash transfers are very good short-term measures but they should not be used in the medium to longer term. They create disincentives for firms to be competitive and use resources in the most efficient way. In plain terms, they make business owners lazy. Incentivising investment in renewable/clean energy today will create jobs and ensure that Australian technology becomes competitive in this worldwide growing market. It will also ensure that Australia remains an attractive and clean place to live. Think of Norway, which generates all of its energy needed with hydropower. Excess energy is exported to other countries. Country is clean and livable. Large infrastructure investments can help to generate immediate employment, while creating a great public resource that pays dividends in the future. A very good example is the Hoover Dam, which was built during the Great Depression. It generated employment for over 20000 men during its 5-year construction. Why not building a massive dam in Australia like the Hoover Dam? Why not building a new Sydney Symphony Orchestra Building (like the "Berlin Philharmony"). Why not expanding the National Parks? Why not building Green Libraries all over Australia? Why not extending the National Broadband Network further, so that Telemedicine becomes feasible and successful? Why not building an Aboriginal History Museum dedicated to Aboriginal and Torres Straight Islander culture, art and economy? I thus support budget items that finance public investments that pay off in the future, and generate employment today.


 

Sue Richardson

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Social housing, More funding for education and training, Funding higher quality aged care

I take "supporting economic activity" to mean increasing jobs. At the same time, it is sensible to pursue expenditure that provides a longer lasting economic and social benefit. To increase employment, expenditure should be on activities the have a high local labour content, such as aged care. Boosting Jobseeker will increase consumer demand, while also reducing poverty. Social housing is sorely needed and will employ blue collar men, while aged care will employ lower education women. Education and training is quite labour intensive and will help the younger people who have been severely hit by the pandemic: better for them to be developing skills, than being unemployed.


 

Tony Makin

Corporate tax cuts, Expanded investment allowance, Wage subsidies or hiring bonuses (beyond JobKeeper), More funding for education and training

Standard textbook theory (see Mankiw's Macroeconomics for instance) correctly teaches us that any attempt to 'stimulate' aggregate demand via additional government spending for a given monetary stance is ineffective in an open economy like Australia as it only acts to induce capital inflow, appreciate the real exchange rate and crowd out net exports, implying a zero short term multiplier. Backed by empirical evidence (Ilzetski, Mendoza and Vegh, JME 2013, Makin and Narayan, EE 2013, Makin and Ratnasiri, EM 2015), this approach explains the behaviour of the economy after the GFC fiscal 'stimulus' very well - when the $A subsequently peaked at over $1.10, crippling manufacturing. Numerous other empirical studies show government spending multipliers turn negative after 2-4 years (Boskin AER 2020). The corollary is that cutting government consumption spending improves international competitiveness, which is what tradable industries like tourism will desperately need during the recovery phase, and which is a necessary condition for reviving manufacturing. Meanwhile, company tax cuts and investment allowances would have both aggregate demand, and more importantly, aggregate supply effects. They would attract new foreign investment, and act to deter Australian based companies investing abroad. To assert company tax cuts would be a handout or subsidy to multinationals presumes capital is internationally immobile which is obviously untrue. Meanwhile, income tax cuts would be inequitable insofar as those unaffected by the crisis, including high income public sector employees, would benefit the most, whereas those most hurt by the crisis, private sector employees in a range of service industries, would benefit least. In any case, given ongoing uncertainty about the future and the wealth losses caused by the pandemic restrictions, income tax cuts are also more likely to be saved, or used to pay down mortgages, than spent. Furthermore, income tax cuts and/or cash transfers are simply unaffordable, given the size of the budget deficit and the prospective doubling of public debt as a proportion of GDP in a few years, which will act as a future drag on economic growth (Boskin AER 2020). Instead, a case can be made for a budget repair levy (as occurred post GFC) on high income earners unaffected by the crisis.


 

Uwe Dulleck

Infrastructure projects, Social housing, Incentives for renewable energy, More funding for education and training

Any expansive fiscal policy we engage in now should be judged by its potential to contribute to future growth. Hence, of the list infrastructure (roads etc. as well as digital), renewable energy investments (a more sustainable economy), and education and training fall into that category, maybe social housing does to some extent. More money in aged care may address another policy problem we have at the moment, but I see less of growth effect of that investment - similarly subsidies for child care could increase labour supply - which I feel could help at a later stage of recovery. Tax reduction in any way, seems to be difficult to square with a climate where an expansive policy is needed.


 

Warwick McKibbin

Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects, More funding for education and training, Increasing subsidies for child care

It is difficult to choose between the multiple choice questions because how they are funded and how the policies are designed is critical. For example funding childcare through income contingent loans rather than subsidies is important but it is not listed. I don't support blanket subsidies for childcare but I have selected half of the choice (i.e. a policy for childcare). Income support payments through income and revenue contingent loans to households and small business is important but it is not listed.