Will the population freeze allow our big cities to catch up on infrastructure?

Glen Searle, University of Sydney and Crystal Legacy, University of Melbourne

The 2020 federal budget forecasts Australia’s population growth will slow to almost zero over several years because of COVID-19 and related restrictions. This leads to the question: will this period allow the big cities to catch up on infrastructure shortfalls that developed before the pandemic?

One of us recently conducted research on how infrastructure shortages – such as rail lines, open space and affordable housing – linked to Sydney’s pre-pandemic rapid growth arose in the context of government support for a lot more population. The findings gives us some insights into whether an infrastructure catch-up might happen.

Read more:
City planning suffers growth pains of Australia’s population boom

The impacts of fiscal imbalance

The research centred on the consequences for infrastructure provision in Sydney of the vertical fiscal imbalance in Australia. The Commonwealth collects more than 80% of tax revenue while the states rely on the Commonwealth for 45% of their revenue.

The federal government, especially the Treasury, favours population growth. That’s because it generates extra tax revenue, reduces the risk of recession and spreads the welfare costs of an ageing society across a wider base.

The state government is also positive about growth, though less so than the Commonwealth. As a public marker of successful government, growth provides political legitimacy. However, it also requires the state, under the Australian Constitution, to provide most of the infrastructure needed to support that growth.

On the other hand, the Commonwealth garners most of the extra tax revenue from growth. Extra state revenue from a growing population is absorbed into the unavoidable recurrent costs of health, education and so on to service the increased needs. As a result, the state government is unable to fund enough new public infrastructure.

Commonwealth infrastructure funding to the state is only a small fraction of the total required. The federal budget says New South Wales will receive A$2.7 billion from the Commonwealth for infrastructure over the next decade. The state government’s forecast infrastructure spending is more than A$100 billion over the next four years.

As a result, the state needs to call on private sector funding as much as possible. This means infrastructure that can’t be fully paid for by users, such as rail lines, open space and affordable housing, is under-provided. And, as is the case in Victoria, existing assets such as public housing are sold to the private sector.

Read more:
Public land is being sold exactly where thousands on the waiting list need housing

An over-reliance on growth?

This context suggests the pandemic-induced flatlining of population growth won’t necessarily allow the infrastructure shortfall to be overcome. Cities are unlikely to catch up unless the Commonwealth greatly increases its funding of state infrastructure.

State budgets rely heavily on growth-sensitive revenue such as property transfer taxes and the GST. And these are set to fall. NSW GST revenue, for example, is forecast to be A$3.5 billion lower this financial year than anticipated before the pandemic.

For states to fund infrastructure beyond user-pay projects like motorways, they have to take on debt to offset reduced taxation revenue. But this will be constrained by their desire to preserve their credit ratings as a marker of good governance.

The federal government is less constrained. The combined influences of ultra-low interest rates and the Reserve Bank’s availability to buy government bonds mean much higher Commonwealth debt is now fiscally tolerable.

The question then becomes: can the Commonwealth’s ability to shoulder increased debt be used to provide the states with more infrastructure funding? The Commonwealth’s huge budgeted outlays to offset the economic impacts of the pandemic are obviously a major constraint on this happening.

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

Nevertheless, infrastructure projects are generally seen as an important vehicle for responding to the effects of the pandemic. And state government projects count just as much as Commonwealth projects for economic recovery.

However, the federal budget provides little cause for optimism here. The big cities received relatively little infrastructure funding, and certainly very little to overcome current shortfalls.

For instance, the main Sydney project funded was the St Marys-Western Sydney Airport rail line. However no business case for the line has been released, and it is likely to be a decades-long white elephant with little passenger traffic.

A case for more federal funding

The case for more Commonwealth funding of state infrastructure goes beyond helping a post-pandemic recovery. The big cities need funding for public goods such as public housing and mass transport.

Read more:
Why more housing stimulus will be needed to sustain recovery

But developing infrastructure of this kind offers limited opportunities for user-pays financing, especially where current shortfalls are significant. These public-good projects range from relatively small projects such as dedicated cycleways to big-ticket items like Sydney’s Metro West and Brisbane’s Cross River Rail, as well as low-job but high-need items like land purchases for new public open space.

The role government played in responding to the pandemic reminded us just how important leadership, accountability and public-sector-led co-ordination are in times of crisis.

Climate change is another crisis that requires such a response, particularly when it comes to infrastructure investment and delivery. Infrastructure that reduces our dependency on carbon involves investment in high-quality public transport, active transport (walking and cycling) and public open spaces.

Read more:
Cycling and walking can help drive Australia’s recovery – but not with less than 2% of transport budgets

In some areas the private sector is well placed to deliver greener outcomes. But in areas such as transport, open space and housing, government investment must play a central role. The transformation that the challenges of the 21st century demand of us needs bold leadership from our elected officials.

As our research has concluded, a deep analysis of the costs and benefits of big city population growth for state government finances should provide the basis for a new federal-state financial accord that addresses the imbalance of such costs and benefits between the two levels of government.The Conversation

Glen Searle, Honorary Associate Professor in Planning, University of Queensland, University of Sydney and Crystal Legacy, Senior Lecturer in Urban Planning, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Economists back wage freeze 21-19 in new Economic Society-Conversation survey

Wes Mountain/The Conversation, CC BY-ND

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

Australian economists narrowly back a wage freeze in the minimum wage case now before the Fair Work Commission, a freeze that could flow through to millions of Australians on awards and affect the wages of millions more through the enterprise bargaining process.

The annual case is in its final stages after having begun before the coronavirus crisis and been extended to take account of its implications.

In its submission, the Australian government called for a “cautious approach”, prioritising the need to keep Australians in jobs and maintain the viability of businesses.

The minimum wage was last frozen in 2009 amid concern about unemployment during the global financial crisis.

Read more:
Economists back social distancing 34-9 in new Economic Society-Conversation survey

The Economic Society of Australia and The Conversation polled 42 of Australia’s leading economists in the fields of microeconomics, macroeconomics, economic modelling and public policy.

Among them were former and current government advisers, a former and current member of the Reserve Bank board, and a former head of the Australian Fair Pay Commission.

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

A freeze in the minimum wage will support Australia’s economic recovery

Each was asked to rate the confidence they had in their opinion, and to provide reasons, which are published in full in The Conversation.

Half of those surveyed – 21 out of 42 – backed the proposition, seven of them “strongly”.

Nineteen disagreed, seven strongly. Two were undecided.

The Conversation, CC BY-ND

The minimum adult wage is A$19.49 per hour.

There was agreement among most of those surveyed that, in normal times, normal increases in the minimum wage have little impact on employment – a view backed by Australian and international research.

But several of those surveyed pointed out that these are not normal times.

Bad times for employers…

Gigi Foster said many businesses were operating closer to the margin of profitability than ever before, and were likely to stay that way for many months.

Rana Roy quoted one the pioneers of modern economics, Joan Robinson, as observing in 1962 that the misery of being exploited by capitalists was “nothing compared to the misery of not being exploited at all”.

John Freebairn argued that a freeze of labour costs, together with very low expected inflation, could provide a key element of certainty in the uncertain world facing households, businesses and governments.

Robert Breunig and Tony Makin suggested that with prices stable or possibly falling, a freeze in the minimum wage might cost workers little or nothing in terms of purchasing power.

Guay Lim and several others said if the government wanted the economic stimulus that would come from an increase in the minimum wage, it had other ways of bringing it about without making conditions more difficult for employers.

…and bad times for workers

Those supporting an increase saw it as a way to bolster consumer confidence and redress unusually weak worker bargaining power.

Wage growth before the coronavirus hit was historically low at close to 2%, an outcome so weak for so long that in 2018 and 2019 the Commission awarded much bigger increases in the minimum wage, arguing employers could afford them.

James Morley was concerned that a freeze in the minimum wage would “mostly just lock in” inflation expectations that were already too low.

Peter Abelson said labour productivity rose with respect for workers and fell with disrespect. A wage freeze would disrespect workers.

Saul Eslake proposed a middle way, deferring a decision rather than granting no increase. He said the increase that was eventually granted should do no more than keep pace with inflation.

Read more:
Why the coronavirus shouldn’t stand in the way of the next wage increase

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

Unweighted for confidence, 45.3% of those surveyed opposed a wage freeze. When weighted for (relatively weak) confidence, opposition fell to 43.5%.

The Conversation, CC BY-ND

Unweighted for confidence, half of those surveyed supported the proposition that a freeze in the minimum wage would assist Australia’s economic recovery.

Weighted for confidence, support grew to 51.6%

The Fair Work Commission is required to complete its review by the end of this month.

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.

Why the coronavirus shouldn’t stand in the way of the next wage increase


Michael Keating, Australian National University

In the early 1970s, when rising inflation and unemployment tore through the economy, someone coined the aphorism “one man’s wage increase is another man’s job” (unfortunately, most of the talk was about men in those days).

It took off, in part because it appealed to common sense. If the price of something (workers) went up, employers would want would want less of them (workers).

In Harper, former head of the Fair Pay Commission.

Employers have used it to oppose every wage increase or improvement in working conditions in history, and still are.

Sometimes they are supported by widely respected economists, such as Ian Harper, who as head of the Fair Pay Commission in 2009 delivered Australia’s last freeze in minimum wages amid forecasts that unemployment was about to climb.

Now he and other economists are calling for another freeze, for the sake of jobs, in the downturn caused by the coronavirus.

Wages are more than prices

But the price of labour is different to other prices. While it represents the cost of buying a service, it also represents an income, one that bundled together with other incomes pays for the service.

When wages grow, spending grows (so-called “aggregate demand”), and so does the economy, as measured by gross domestic product.

Nevertheless, the standard neoclassical growth model used by the treasury and Reserve Bank doesn’t recognise this. Instead, it assumes that over the medium term economic growth is entirely determined by supply rather than demand, and that supply is a function of the three Ps: productivity, population and workforce participation.

Read more:
Vital Signs: Amid talk of recessions, our progress on wages and unemployment is almost non-existent

Demand is said to merely cause short term fluctuations around the medium term growth path, and it is thought to be the job of monetary and fiscal policy to iron out the fluctuations to avoid unnecessary inflation or unemployment.

There are a number of other peculiar things about the model. It assumes that there are constant returns to scale, that technological progress favours neither labour nor capital, and there is perfect competition.

These assumptions effectively mean the distribution of income between wages and profits is constant and can be ignored.

The model that continually gets it wrong

Fluctuations in wages growth are presumed to be cyclical, amenable to correction by by monetary policy (interest rates), with fiscal policy (tax and government spending) held in reserve.

The model hasn’t performed well.

Over the past decade the treasury and Reserve Bank have persistently overestimated wage growth.

Wage growth has almost halved during the time it was overestimated, and it seems likely this is related to a similar decline in the growth of GDP.

Treasury and the Reserve Bank overestimated wage growth because, when combined, the three Ps of productivity, population and workforce participation were growing strongly.

Their thinking was that if wage growth wasn’t climbing as expected, that was mainly due to a cyclical downturn. All that was needed were some interest rate cuts.

We’ve had 17 interest rate cuts in the past decade the treasury and Reserve Bank have continued to forecast wage growth while taking the cash rate all the way down from 4.75% to close to zero.

There are better models

A better model, used by post-Keynesian economists, treats economic growth as being determined by aggregate demand, both in the short and longer terms. Aggregate demand can be either wage or profit-led.

Wage growth can lead to growth in consumer spending, profit growth can lead to growth in business investment.

Profit growth can be enhanced by changes in the profit share of income, which is the other side of the wage share of income. When the wage share of income goes up, the profit share goes down.

Read more:
Budget explainer: why is Australia’s wage growth so sluggish?

But profit growth can also be affected by capacity utilisation, which is the extent to which factories and the like are operating at their full capacity. The more consumers spend, the greater the rate of capacity utilisation and the greater are profits.

Very large increases in real wages can most certainly dent economic growth.

They cut profits and business investment by more than they increase consumer demand and capacity utilisation, as happened in the early 1970s when between 1973 and 1975 nominal wages increased at an average annual pace of 23.2 per cent and real wages increased at an average pace of 8.9 per cent – way ahead of annual productivity growth of 1.3 per cent.

But mostly, wage rises boost consumer demand by more than they cut business investment.

Indeed, they can actually push business investment higher. This is because profits are often more responsive to the increase in capacity utilisation that results from increased consumer demand than to a lower profit share.

We’ll need to boost incomes, if not wages

This seems to explain the economic stagnation we have experienced since the global financial crisis. Low wage growth has held back consumer demand, which has also held back business investment.

There are three possible policy responses.

One is to boost household incomes in a way that doesn’t involve boosting wages, perhaps by government payments and/or tax relief. A downside is that they add to the budget deficit and public debt.

Another is to try and increase wages. Tools could include include government support for higher wages, starting with support for a modest increase in the minimum wage case now before the Fair Work Commission.

Read more:
We should simplify our industrial relations system, but not in the way big business wants

Longer term, a more effective and lasting increase in wages could be achieved by better education and training to better skill workers. These proposed courses of action are not mutually exclusive. We will probably need to adopt all three.

But we will need to understand that improving our economic circumstances will require a combination of wage increases and increased government support.

The more the government opposes wage increases, the more pressure there will be for it to increase spending and/or offer more tax relief if we want the economy to grow at its potential and to lift that potential.

These thoughts are developed in Low Wage Growth: Why It Matters and How to Fix It, Stephen Bell and Michael Keating, Australian Economic Review, December 2019.The Conversation

Michael Keating, Visiting Fellow, College of Business & Economics, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Morrison brings immigration centre stage with freeze on refugee intake

Michelle Grattan, University of Canberra

Scott Morrison will seek to bring the debate over immigration and refugees to the centre of the election campaign, with an announcement that a Coalition government would freeze the humanitarian intake.

He will contrast this with Labor plans for an increase in the humanitarian component, claiming this would cost many billions of dollars and challenging Bill Shorten to produce more detail about the consequences.

So far immigration has not had a prominent place in the campaign. The border security issue went quiet when the expected large number of applications for transfer from Nauru and Manus after the medevac legislation failed to materialise.

Read more:
View from The Hill: Palmer flypaper sticky for both sides

Morrison on Sunday will announce that the number of migrants coming to Australia as refugees will be frozen at 18,750.

He will appear at a rally with John Howard, who as prime minister was strongly associated with a tough border policy.

The government has already announced a cap on the migration program of 160,000. The previous cap was 190,000, although the actual intake had fallen to about 160,000.

It will contrast its freeze on the humanitarian intake with Labor’s plan to increase it to 32,000 by 2025-26.

Morrison will also outline the proposed makeup of the humanitarian program for the first time. This will include an overall target of 60% of the offshore component allocated to women. Women made up 50.8% in 2017-18.

The Coalition’s Women at Risk program, as a proportion of the offshore component, would be increased from 14% in 2017-18 to 20% (3,500) in 2019-20.

Read more:
Labor’s crackdown on temporary visa requirements won’t much help Australian workers

The government also plans to try to boost the number of refugees and humanitarian entrants settled in regional areas from a target of 30% to 40% in 2019-20. But it stresses that people would not be forced to areas that did not want them.

Some 27% of the humanitarian program will be reserved for Women at Risk and the Community Support Program, which is private sponsorship from church and community groups.

In comments ahead of the Sunday announcement, Morrision said: “We’ve got our borders and the budget under control. We make decisions about who comes here based on what’s in Australia’s interests.

“Australia isn’t just about growing our population – it’s about quality of life. We’re capping and freezing our immigration growth so our government’s record A$100 billion congestion busting program for roads and rail can catch up and take the pressure off our cities.”

Read more:
State of the states: Palmer’s preference deal and watergate woes

Morrison said the government had been upfront that it was reducing the migration intake cap and capping the number Australia let in under its humanitarian program – that was one of the most generous in the world.

“We are telling where we’ll be taking migrants from, who they will be, the skills we want them to have, and working with regions to settle people in towns that want and need more workers, skills and students.

“It’s time for Bill Shorten and Labor to front up and tell Australians about their $6 billion plan to massively increase immigration and where they’re going to house thousands of extra people.

“Labor’s immigration bill is going to go through the roof and the only way they can pay for it is taking $387 billion in higher taxes from Australians.”

The government some time ago put a costing of $6 billion over the medium term on increasing the government-funded humanitarian intake from 17,750 to 27,000 by 2025-26.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Evangelical Christians at risk from Russian government

Evangelical Christians may be at risk in Russia as Orthodoxy gains more and more governmental favor, reports MNN.

The Liberty of Conscience Institute recently discovered that the Russian government is cozying up to the Russian Orthodox Church in ways that may inhibit religious freedoms. Joel Griffith of Slavic Gospel Association says there is reason to be concerned.

"Russia’s president [has] taken the initiative to permanently assign orthodox priest army units, and they’re also wanting to introduce religious education classes at state schools."

The more power the Orthodox Church gains, the more risk there will be to the religious freedoms of all minority religions, no less evangelical Christianity. Griffith says history proves that evangelical Christians may well be targeted if such legislation is passed. A sizeable evangelical movement would well be viewed as an encroachment on Orthodox territory, and would consequently not be taken lightly.

If this is the case, evangelical movement could be very much hindered in Russia. As it now stands, some evangelical churches experience virtually no opposition at all from the government, while others experience a great deal. If a national legislation should pass, opposition will likely extend to every evangelical church.

"If this becomes a policy of the national government to freeze out evangelicals, obviously that’s going to have a pretty big impact not only on freedom of worship," cautions Griffith, "but also on the proclamation of the Gospel."

Fortunately, in order for any such government-orthodox partnership to be enforced via the military and education, it would have to pass through a significant number of hoops. As it stands, this sort of breach on the separation of church and state goes directly against the Russian constitution, not to mention Western ideals.

"The West is concerned with human rights and the freedom of conscience and the freedom of worship," notes Griffith. "And officially under the constitution, there’s supposed to be freedom of religion and freedom of worship in Russia. So any moves to do this certainly fly in the face of what the Russian constitution would say."

Unfortunately, many Russians consider Orthodoxy as a given. Historically, the Orthodox Church has, more often than not, been considered an arm of the Russian government. Pray that the obvious infringement of government policy on the basis of the constitution would be enough to stop Orthodox alliances with the Russian government from being nationally enforced.

Slavic Gospel Association helps equip churches in Russia with training and materials to prepare them for every situation as evangelicals.

Report from the Christian Telegraph 

Church Buildings Attacked in Malaysia Following Court Decision

Muslim groups angered by ruling to allow Catholic newspaper to use word ‘Allah.’

KUALA LUMPUR, Malaysia, January 11 (CDN) — In unprecedented acts that stunned Christians in Malaysia, suspected Islamists have attacked eight church buildings since the country’s High Court ruled that a Catholic weekly could use the word “Allah.”

Firebombs were thrown into the compounds of four churches in Kuala Lumpur and neighboring Petaling Jaya on Friday (Jan. 8); three more attacks occurred on Sunday (Jan. 10) in Taiping, Melaka and Miri; and another church building was hit today in Seremban. There were no reports of injuries.

Judge Lau Bee Lan delivered the controversial court ruling on Dec. 31, arguing that the Herald had a constitutional right to use the word “Allah” for God in the Malay section of its multi-lingual newspaper. The ruling caused an uproar among many Muslim groups widely reported to have called for nationwide protests after Friday prayers, asserting that “Allah” can be used only in the context of Islam. Among groups calling for protests were the Muslim Youth Movement and the National Association of Muslim Students.

Inflammatory rhetoric has emerged in the escalating conflict; at a protest in Shah Alam since protests began on Friday, a speaker at one rally urged listeners to “burn churches,” according to the online news site Malaysian Insider. The crowd reportedly stood in stunned silence.

Malaysia’s Home Ministry filed an appeal against the High Court decision on Jan. 4. Two days later, the court allowed a freeze on the decision to permit the Herald to use the word “Allah” pending hearing in the Court of Appeal.

The attacked churches were Metro Tabernacle (Assembly of God) in Kuala Lumpur, and three churches in Petaling Jaya: Life Chapel (Brethren), Assumption Church (Catholic) and Good Shepherd Lutheran Church (Lutheran); also damaged were All Saints’ Church (Anglican) in Taiping, Melaka Baptist Church in Melaka (vandalized but not firebombed), Good Shepherd Church (Catholic) in Miri (pelted with stones) and Sidang Injil Borneo (Evangelical Church of Borneo) in Seremban.

Though there were no casualties, a number of the church buildings were damaged in the attacks. Metro Tabernacle suffered the worst damage, with the ground floor of its three-story building, which housed its administrative office, completely gutted. The main door of the church in Seremban was charred.

The Rev. Ong Sek Leang, senior pastor of Metro Tabernacle, reportedly said that the church harbors no ill feelings toward the culprits and would forgive those responsible, but that it does not condone the acts.

Most of the other church buildings suffered minor damage, though the Assumption Church was spared when the Molotov cocktail thrown into its compound failed to go off. The Melaka Baptist Church building was splashed with black paint, while stones were thrown into the Good Shepherd Church building in Miri.

The Malaysian Insider reported on Friday (Jan. 8) that two other churches received telephone threats from unknown sources.

Christian leaders, government and opposition leaders, and Non-Governmental Organizations have condemned the attacks. Police have promised to increase security around church buildings, but Inspector-General of Police Musa Hassan told the Malaysian Insider that churches must beef up their own security since there is a shortage of police personnel.

Malaysia’s population is about 60 percent Muslim, 19 percent Buddhist and 9 percent Christian. About 6 percent are Hindu, with 2.6 percent of the population adhering to Confucianism, Taoism and other traditional Chinese religions.


The spate of church attacks shocked the Christian community and nation, as acts of violence on places of worship are unprecedented in Malaysia.

Ramon Navaratnam, Chairman of the Centre of Public Policy Studies, said in a press statement on Friday (Jan. 8) that the attacks marked a “troubling trend” and “a low point in our nation’s history.”

The same day, Malaysian Bar Council Chairman Ragunath Kesavan said in a press statement that the attacks were “shocking and offensive” and that “all right-minded Malaysians must condemn it as indecent and unacceptable.”

Christian leaders strongly denounced the attacks and have asked the government to safeguard the community and its places of worship. They have also called on the government to take firm steps against the perpetrators while paving the way for greater understanding between the different religious communities.

The Rev. Dr. Hermen Shastri, general secretary of the Council of Churches Malaysia, called on the government to “show zero tolerance for the use, threat or incitement, of violence as a means to pressure the decision of the court.” The Rev. Eu Hong Seng, chairman of the National Evangelical Christian Fellowship, called on the government “to take the necessary steps to educate those who lack understanding and are ‘easily confused’ to be mature-minded in a progressive democratic society.”

Leaders on both sides of the political divide have also denounced the attacks, while a number of opposition leaders – including Anwar Ibrahim, adviser to the People’s Justice Party – put the blame on the United Malay National Organization (UMNO), the leading partner in the ruling coalition government. Anwar reportedly accused UMNO-owned newspaper Utusan Malaysia of having incited Muslims over the court decision.

A number of local commentators have also criticized Prime Minister Najib Abdul Razak and Home Minister Hishammuddin Hussein for not defusing rising tensions in the initial days of the court ruling. They have also come under fire for saying they would allow public demonstrations by Muslim groups to proceed, and that they would take action “only if things got out of hand.”

Despite the attacks, a check with parishioners of several churches in the Klang Valley showed Christians were undeterred by the acts of violence and continued to gather for worship yesterday.

Urging Christians to pray, Sam Ang, secretary-general of the National Evangelical Christian Fellowship, told Compass, “We see this as an opportunity to trust in the Lord and to revitalize our faith, especially for second-generation Christians.”

Report from Compass Direct News