Australia’s climate failures are costing its economy – and Scott Morrison’s government is being blamed

By Greg Jericho
Scott Morrison
A quicker pace of emissions reduction remains toxic to Scott Morrison’s government – as the prime minister lacks the political will or power to challenge the climate change deniers in his government. Photograph: Mike Bowers/The Guardian

The latest OECD economic survey of Australia details an economy that has weathered well the Covid storm, and yet while the Morrison government will enjoy such talk, it will not like the advice that comes with it – recommendations to improve our low productivity growth, inequality and to massively reduce our emissions.

The OECD only surveys a country every few years. The latest, released overnight, is the first for Australia since December 2018.

Back in 2018 global pandemics were merely the stuff of movies; and so the report was focused on keeping growth at around 3%. Back then, the OECD noted of Australia, “life is good, with high levels of well being”.

This time the opening is rather less ebullient.

Yet the OECD praises our Covid response, noting, “well-coordinated policies across different levels of government sought to suppress Covid-19 transmission” and that the economic “downturn in 2020 was less significant than in the majority of other OECD countries”:

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The report’s authors note that Australia had one of the biggest stimulus packages and the one that was most targeted for the 2019-20 financial year:

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But it also notes that the latest outbreaks and lockdowns “are having a significant negative impact on economic activity”.

The OECD estimates that the Delta strain also means the next economic rebound “may be more gradual than in previous episodes, given it will occur in an environment of higher community transmission of Covid-19”.

And while the OECD always prefers a budget surplus to deficit, it notes that the current low interest rates mean that “the government could run primary fiscal deficits in the coming years and still put the government gross debt ratio on a downward path”.

But the OECD survey is not just about summarising the current situation, it also delivers recommendations – a number of which the government will not wish to hear.

The OECD has long been a proponent of more tax being raised by the GST than personal income and company taxes. It notes that our GST has a lower rate and many more exemptions than most of the OECD and suggests both should be changed:

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That of course is not going to happen anytime soon – unless Scott Morrison decides he really wants to lose the next election.

The OECD also suggests now is a good time for a review of our monetary policy framework. It suggests a broad review that potentially includes “a review of the central bank mandate, policy tools, methods of public communication, hiring processes and internal structures”.

While that might be politically fraught, it is more palatable for the government than the OECD’s other recommendation that fiscal policy have much greater transparency by tasking the Parliamentary Budget Office with the power to “regularly evaluate and monitor the fiscal strategy”.

Such a role would be more akin to that of the Congressional Budget Office, and is incidentally something I have long argued in favour of, but would see the government’s own policy being subjected to analysis – something it will not agree to.

The report also argues for a further increase in unemployment benefits noting that “the income shock from falling into unemployment in Australia is much larger than in other countries and minimum income supports remain well below the relative poverty line”:

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And as in 2018, the report tackles the ongoing issue of slow productivity growth that has been in place since 2013:

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Among the policies the OCED recommends to improve productivity are introducing an inheritance tax, reducing the capital gains tax discount and replacing stamp duty with land tax.

While Josh Frydenberg has praised states like New South Wales for shifting towards a land tax, there is no way the government will increase taxes on retirees and property investors.

Neither will it likely push to implement other productivity spurring recommendations such as road-user charges (another long-favoured OECD policy) or a resources rent tax (yes, a “mining tax”).

But where the report is most uncomfortable for the Morrison government is when it comes to climate change.

Rather than swallowing the government’s line about meeting and beating its emissions target, the report notes “faster progress in reducing carbon emissions is needed”:

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The report notes as well that Australia is “uniquely placed to benefit economically from global decarbonisation due to a large (and windy) land mass, high solar radiation, [and] plentiful ocean access”.

Unfortunately, the report found that “there has been a trend decline in environmental innovation over the past decade and stronger incentives for innovation and adoption of new low emission technologies are needed.” So much for our policy of reducing emissions through technology not taxes.

This failure is blamed on the Morrison government.

The report argues “a coherent and coordinated national strategy that defines clear goals and corresponding policy settings” for achieving net zero emission by at least 2050 “is needed”.

Failure to do so since the end of the carbon price has meant Australia has missed out on “significant economic benefits” that “can come from a quicker pace of emission reductions”.

That again remains toxic to the Morrison government – as the prime minister lacks the political will or power to challenge the climate change deniers in his government.

And so the Morrison government will find much to like in this survey about what the OECD reports of 2020, but much to ignore about what it recommends for the future.

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