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Australia's economic, social and environmental future

By Chris Lewis - posted Wednesday, 8 January 2020


Entering a new decade in 2020, can Australia improve its economic, social and environmental policy mix at time of unprecedented policy difficulties?

First, Australia clutches to a hope that Western primacy will prevail and limit the growing influence of authoritarian nations while still looking to authoritarian China to purchase more of its exports and services.

Second, beyond the growing importance of services to the economy, Australia hopes to maintain export diversity beyond being a quarry for the world by remaining a major global food producer, yet the recent mass fires is a timely reminder that water resources are precious in a drought ravaged country where farmers already confront higher water prices.

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While Australia produced just 1.3% of global greenhouse gas emissions in 2017, although much higher if the consumption of its mineral fuel exports are counted, any hope for a cooler climate in the near future is unlikely as more Chinese and Indians alone (with a combined 2.7 billion people) acquire a more energy intensive way of life.

With global greenhouse gas emissions in 2018 rising at its fastest rate for a decade, with "a young fleet of coal-fired power plants in Asia accounting for a large proportion of the increase", India alone had a 6.3% increase with 59% of its power generation coming from coal.

In other words, while the best hopes for free trade over many decades were indeed justified to encourage peace and prosperity between nations, and Australia did benefit in recent decades from high demand for mineral exports, new policy difficulties were largely unforeseen or downplayed by policy leaders with regard to environmental problems and the rise of authoritarian nations.

Nevertheless, Western societies (such as Australia) still have a capacity to lead by example in terms of their economic, social and environmental policy mix, especially when compared to authoritarian and other societies that disregard the importance of public debate to encourage sensible policy outcomes.

For example, while one cannot dispute the problems faced by many Australian producers through unaffordable high water prices, authoritarian China, despite building many dams at the sources of 10 major rivers that flow through 11 countries, has long suffered from the artificial low pricing of water which encouraged poor water management, inefficient use by industry and agriculture, and the pollution of scarce freshwater supplies.

In environmental terms, given that technology has brought both economic benefit and environmental degradation, it remains to be seen to what extent Australia (and other liberal democracies) will take heed of the International Monetary Fund's 2015 call for countries to consider carbon pricing "to accelerate progress toward a green world".

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After all, with a 2018 article pointing out that the US had reduced its carbon dioxide emissions by about 8% since 2000, the US still increased its greenhouse gas emissions by 3.4% during 2018, a higher level than China's 2.3%.

As it stands, 2018 analysisindicates that Germany, the United Kingdom, and France did the best of the twenty largest greenhouse gas emitters since 1990 in terms of lowering emissions yet achieving economic growth.

But balancing economic, social and environmental policy needs is an extremely difficult task for any liberal democracy as government and society debate where resources should be spent.

While a nation can indeed succeed with higher taxation levels, as indicated by Sweden which both reduced its national debt to GDP ratio from 80 per cent in 1995 to 41 per cent in 2017 and maintained a trade surplus (aided by high-tech manufacturing products), it remains to be seen whether Australians will support a higher level of government revenue.

With the Bureau of Meteorology's State of the Climate 2018 report stating that climate change "had led to an increase in extreme heat events and increased the severity of other natural disasters", it may well be that Australia will eventually build immense water infrastructure to both help its food production and fight fires.

Although the financial cost would be considerable, and perhaps signal the further erosion of Australia's environmental credentials as dams and pipes take greater precedence, water infrastructure would probably be more beneficial than the very expensive National Broadband Network (NBN) which cost $51 billion by 2019 and has received considerable criticism.

While Australia's Commonwealth Scientific and Industrial Research Organisation provides a vision for Australia to achieve both higher economic growth and lower greenhouse gas emissions by 2060, the reality is that it will take an extraordinary effort for any society to improve its economic, social and environmental policy mix given global economic realities that force all nations to give adequate attention to government spending, taxation levels and labour costs.

For Australia, the growing importance of service jobs to the economy is also subject to the effects of an increasingly global workforce, with major Australian companies (often included in Australian superannuation funds via the share market) prone to job losses offshore due to high domestic wages.

During 2018, Telstra announced the loss of 8000 jobs with most of the proposed 1500 new roles "to build new capabilities required for the future" to be based in Bangalore (India), while also indicating in 2019 that 10,000 contractors would go over the next two years, thus reducing its workforce from 40,000 to around 24,000 by 2022.

While job cuts also reflected a shift to automated service systems, the reality is that any failure to reduce costs against competition will diminish a company's ability to survive or prosper against external competition, perhaps a reality indicated by Telstra's share price rising steadily in 2019 after a 3½-year downward spiral.

Tougher times for many Australians are evident throughout its society.

With regard to housing, while Australian governments look to that sector to boost Australia's domestic economic fortunes, with the Reserve Bank in late 2019 observing that a decline in housing prices alone was enough to reduce consumption and construction activity, many Australians are struggling to purchase and pay off a home with 2018 research by the Grattan Institute estimating that the proportion of 45-54 year olds owning their home outright had declined from nearly half in 1996 to just 17%.

Not surprisingly, it was noted by housing academics in 2018 that Australia needs to dramatically increase its small stock of social housing over the next 20 years to meet existing and new demands due to homelessness, increasing home unaffordability and high rents.

The authors suggest that a tenfold increase is needed to match the 14% public housing share of Australian housing in the decade to 1955 at a time when state and territory governments (financially supported by Canberra) built 8,000-14,000 dwellings a year from 1945 for half a century.

In contrast to Australia's high reliance upon private housing, housing providers with a social purpose still account for 20-31% of all home building in the United Kingdom, Finland, France and Austria, with Asian countries such as Singapore having an even higher rate. In 2017-18, England's not-for-profit housing associations completed 42,000 of the total 161,000 homes built.

Many Australians also struggle with living infrastructure costs, estimated to be around $314 per week for the average household consisting of $205 for car running costs, $45 for phone and internet costs, $41 for power and $23 for water.

Hence, while the median weekly gross household incomeincreased from $1607 in 2007-08 to $1701 in 2017-18 in real terms, higher housing costs alone help explain why the proportion of households with debt three or more times income increased from 23.4% in 2005-06 to 28.4% in 2017-18.

In addition, as the Australian Council of Social Service highlights, albeit the impact differs from person to person, many Australians struggle from stagnating wages, longer waiting lists for dental care, tougher eligibility through income tests for Family Tax Benefits, the tightening of the pension assets test and eligibility for the Disability Support Pension, and longer waits for older people with medical conditions for in-home care.

With regard to immigration, while the Morrison government has pledged to reduce the cap on permanent migration from 190,000 to 160,000 after rising from 85,000 in 1996 to 208,000 in 2017, albeit short-term work visas and international students account for 700,000 per year in temporary migration, this level has placed an enormous strain on Australia's infrastructure needs, especially in Melbourne and Sydney where most visitors head.

While the Morrison government has announced a 10-year plan to invest $100 billion in infrastructure, Infrastructure Australia recently estimated that around $200 billion would need to be spent every five years on a range of infrastructure projects if it wants to keep pace with population growth.

Infrastructure Australia argued that such investment was needed to ensure adequate roads, public transport, schools, water, electricity and health services uphold Australia's quality of life and economic productivity. This investment was needed at a time when hospitals and schools are ageing or reaching capacity, parks and city green spaces were becoming overcrowded, and water pipes were ageing.

The debate over Australia's policy mix should and will be fierce. For example, while the Morrison government is committed to cutting income tax rates, with an individual on $200,000 from 2024 gaining most at $224 per week, others will argue that income tax cuts alone do not necessarily help the majority.

For example, it is noted that Donald Trump's 2017 income tax cuts have hardly helped most Americans. While savings has increased, inflation-adjusted wages for most American workers grew by just 1.6% From July 2018 to July 2019 compared to the 2.1% from December 2017 to December 2018, non-revolving consumer credit (mainly auto and student loans) by March 2019 remained at similar levels (18.6% of after-tax income) as it was in December 2017, economic growth had slowed since the middle of 2018, and the federal government deficit increased by almost $US2 trillion.

To conclude, it remains to be seen just how Australia's social and environmental policies evolve at time of unprecedented policy difficulties.

For instance, while the Morrison government on 6 January 2020 announced an initial $2 billion Bushfire recovery fund over the next two years in response to Australia's current bushfire calamity, at time when $2 billion will be spent over the next decade through the Climate Solutions Fund to help reduce greenhouse gas emissions, such policy announcements may reflect the possibility that only the wealthy nations will have the resources to respond to emerging major environmental disasters.

As a student of politics that believes there are strengths and weaknesses in both the centre-left and centre-right perspective, however, reflective of the age-old reality that any decent and evolving social welfare system must also pay heed to competitive realities such as taxation rates and labour costs, Australia's policy mix will ultimately be decided by its people at the ballot box after public debate influenced by various interest groups.

I hope that Australian governments, both centre-left and centre-right, will ensure a fair distribution of resources due to public expectations/demands for a prosperous society and a better environmental future, albeit only a fool will downplay the reality of tough policy times ahead as Australia must rise above simple policy solutions in this competitive world.

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About the Author

Chris Lewis, who completed a First Class Honours degree and PhD (Commonwealth scholarship) at Monash University, has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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All articles by Chris Lewis

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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