Good-bye to all that complacency - Ross Garnaut
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25/02/2021 Good-bye to all that complacency
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Policy Economy Australian economy
Opinion
Good-bye to all that complacency
A better post-virus Australia means junking our mistakes in immigration,
monetary and climate policy.
Craig
Craig
CraigEmerson
Emerson
Emerson
Columnist
Feb 22, 2021 – 12.13pm Save Share
From today, a detailed road map is available for transforming Australia to a country
of growing and shared prosperity, social cohesion and leadership in global efforts
to reduce carbon emissions. Professor Ross Garnaut’s latest book, Reset, is, as
expected, economically coherent. But its policy prescriptions are also mostly
realistic, politically feasible and available to any mainstream political party with
ambition for our nation.
https://www.afr.com/policy/economy/good-bye-to-all-that-complacency-20210221-p574gg 1/925/02/2021 Good-bye to all that complacency
Professor Ross Garnaut thinking about Australia’s post-virus future. Photo: Luis Ascui
Garnaut’s analysis shatters the complacency associated with the Morrison
government’s early goal of snap back. He argues persuasively that snapping back to
the pre-pandemic policy settings that yielded weak productivity and wages growth,
unnecessarily high unemployment and underemployment and falling private
investment would condemn everyday Australians to stagnant or declining
incomes.
Garnaut warns that stagnation and a decline in living standards would drive
deepening disillusionment with our economic and political systems.
Of all the policy errors Garnaut identifies, he concentrates his energies on three:
immigration policy, monetary policy and climate policy.
Reset is not a politically loaded book. Garnaut describes, for instance, the Morrison
government’s immediate response to the pandemic recession as “an economic
policy success story.” And he supports the government’s investment allowance as a
modest but
but
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On immigration policy, Garnaut laments an unannounced but fundamental shift: a
change in the composition of the immigration intake away from permanent, skilled
migration to temporary, low-skilled migration. The effect, he points out, has been
to integrate the Australian labour market into the global market for the first time,
suppressing both jobs and wages for many Australians.
Yet the Reserve Bank has been worried about low wages growth for several years
now concerned about its consequences for consumer spending which constitutes
https://www.afr.com/policy/economy/good-bye-to-all-that-complacency-20210221-p574gg 2/925/02/2021 Good-bye to all that complacency
now, concerned about its consequences for consumer spending which constitutes
more than half of Australia’s GDP.
The Reserve Bank has been fighting a war on inflation that
was won last century.
But it is on the Reserve Bank’s monetary policy settings that Garnaut delivers his
most withering critique. He points out that not once in seven years did the Reserve
Bank achieve its targets for unemployment or inflation, yet doggedly stuck to its
inappropriate settings.
By running a tighter monetary policy since 2012 than the central banks of the
world’s largest economies, the Reserve Bank has been responsible for what
Garnaut describes as the “voluntary unemployment” of several hundred thousand
Australians – unemployment he says the Reserve Bank “chooses to allow.”
By deliberately keeping Australian interest rates above international levels before
belatedly lowering them to virtually zero, and by refusing to engage in quantitative
easing before being dragged by reality into doing so, the Reserve Bank has been
fighting a war on inflation that was won last century. The Reserve Bank’s
determination to refight an old war pushed the Australian dollar much higher than
it needed to be, badly damaging Australian competitiveness, job creation and
private investment.
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Quantitative easing has its own consequences, fuelling asset prices, including
house prices, exacerbating inequality and causing resentment among younger
generations. But, as Garnaut points out, the financial authorities have other tools to
deal with this, including macroprudential policies to rein in bank lending.
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maintaining its independence from government, the Reserve Bank would cut out
the banking middlemen and directly fund the public sector’s debt requirements.
Garnaut’s road map to a sustained recovery with social cohesion involves:
cutting back heavily on temporary migration;
running a monetary policy that aligns with those of the central banks of
major economies until our economy yields rising real wages;
maintaining at some level the support being provided by JobSeeker and
alternatives to JobKeeper until we are close to full employment;
replacing company income tax with a cash flow tax; and
seizing the opportunity for Australia to become a clean energy superpower
afforded by its abundance of renewable energy sources and vast tracts of
land into which carbon can be absorbed.
Also on Garnaut’s road map is the provision of a universal basic income of $15,000
per annum designed to restore a sense of equity in the Australian community. He
points out that it would be expensive, but at a time when we need to lift consumer
spending anyway, while clawing back much of the cost as the workforce
participation rate increases through the 2020s.
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expensive for either major party to contemplate at this time of burgeoning public
https://www.afr.com/policy/economy/good-bye-to-all-that-complacency-20210221-p574gg 4/925/02/2021 Good-bye to all that complacency
debt – but that it bolsters the case for JobSeeker to be maintained at a level well
above that of Newstart before the pandemic struck.
More fundamentally, Garnaut calls for a return to valuing knowledge and our
universities as the only viable basis for sound policy making and a revival of respect
for our democratic institutions. Biden’s
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hope.
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We Australians can hope too. Garnaut’s policy road map gives us hope that
Australia can emerge from its great complacency, put its dog days behind it and
enter a new era of economic and social progress in a fairer society.
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Craig
Craig
CraigEmerson
Emerson
Emerson is managing director of Emerson Economics. He is a distinguished fellow at
the ANU, director of the Australian APEC Study Centre at RMIT and adjunct professor at
Victoria University’s College of Business.
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