No big bounce: 2020-21 economic survey points to a weak recovery getting weaker, amid declining living standards


Wes Mountain/The Conversation, CC BY-ND

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

The picture of economic recovery painted by Prime Minister Scott Morrison is looking like a mirage. The 22 leading economists polled by The Conversation from 16 universities in seven states on average expect historically weak economic growth in all but one of the next five years, with growth dwindling over time.

In June, Morrison promised to lift economic growth by “more than one percentage point above trend” through to 2025.

Growth one percentage point above trend would average almost 4% per year.

Instead, The Conversation’s economic panel is forecasting annual growth averaging 2.4% over the next four years, much less than the long-term trend, tailing off over time.



The results imply living standards 5% lower than the prime minister expects by 2025.

The panel expects unemployment to peak at around 10% and to still be above 7% by the end of 2021.

It expects wages to barely climb at all, by just 0.9% in 2020, the lowest increase on record and even less than the rate of inflation, which it expects to be only 1.2%. It expects the share market to sink further in the rest of this year before climbing a touch in 2021.

Non-mining business investment, on which much of Australia’s recovery depends, should bounce back only 3.3% in 2021 after slipping 9.5% in 2020.




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The Conversation’s panel comprises macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board.

Several admitted to much greater uncertainty than usual. One pulled out, saying “it’s really a mug’s game right now”.

One, who did take part, despaired that forecasting had been reduced to “guessing, in the context of an unprecedented event”.

Several cautioned that climate change, along with the prospect of new waves of coronavirus, makes five-year forecasts especially difficult.

Economic growth

All of the panel expect incomes and production to shrink in the June quarter (the one finishing now) after shrinking in the March quarter, meaning we will be in a recession (if there was any doubt).

Some are expecting a small bounce in the September quarter, although they warn that if JobKeeper and the coronavirus JobSeeker Supplement end as planned when September finishes, economic activity will turn down again in the December quarter, creating what panellist (and former Labor politician) Craig Emerson describes as a “W-shaped economic trajectory”.

Panellist Julie Toth cautions there is “no magic V ahead”. Without government action on adaptation to climate change, productivity, industrial relations, inequality and other matters, the best that can be hoped for is a partial recovery of some of the growth that has been lost.

In in 2021 the panel expects the economy to recover only half of what it lost in 2020. After peaking at 2.9% in 2023, economic growth will slip back to less than it was before the crisis.



The panel expects China’s economy to shrink 2.3% this year before bouncing back 4% in 2021. It expects the US economy to shrink 5.6% before recovering only 2.2%.

Steve Keen suggests that the underlying US performance will be even worse. It will have attained its measured performance by being prepared to live with adverse health consequences.

Tony Makin notes that China’s near-term economic growth is likely to be hampered by a move towards deglobalisation in countries wanting to make their supply of goods and health equipment less reliant on China.



Unemployment

The forecasts for the peak in the unemployment rate range from the present 7.1% to 12%, with most of the panel expecting the peak before the end of the year.

Julie Toth points out that even with no further job losses, “which seems unlikely”, measured unemployment will continue to rise for some time as people who have stopped looking for work start looking again and return to being counted as unemployed.

Saul Eslake says this participation rate makes forecasting the unemployment rate a “crapshoot”. The rate will depend largely on how many people choose to define themselves as looking for or no longer looking for work.



Living standards

The panel expects household incomes and spending to fall by about 4% over the course of the year.

The best measure of living standards, real net national disposable income per capita, should fall 4.5%.



Real wages, a key component of living standards, are expected to fall.

Never in the 23-year history of the Australian Bureau of Statistics’ wage price index has annual wage growth been much below 2%. Until now the lowest annual growth rate has been 1.9%.

The panel is forecasting growth of just 0.9% throughout 2020, a mere half of the record low to date. The forecast calls into question the timing of the current legislated increases in compulsory superannuation contributions of 0.5% of salary per year for each of the next five years, scheduled to start next year and set to eat into wage growth.

Headline price inflation should be only 1.2%, and underlying (smoothed) inflation only 1%, but both would be more than wage growth, shrinking the buying power of wages.



Share market

The spectacular recovery in the Australian share market (up 29% since late March after sliding 36% since late February) is not expected to continue this year.

The panel expects the ASX 200 to end the year down 8% before climbing 2.3% in 2021.

But the forecasts for 2021 fan out over a wide range, from a fall of 10% to a rise of 10%.



Housing

Sydney and Melbourne house prices are expected to reverse their gains of 5% and 3% in the first half of the year to close about where they started (Sydney) and down 1.3% (Melbourne).



New home building is expected to plunge a further 10% in 2020 after sliding 10% in 2019.

On balance it is not expected to improve at all in 2021, although again the range of forecasts is wide, from a recovery of 10% (Renée Fry-McKibbin) to a further decline of 10% (Stephen Hail).



Business

Mining investment is expected to continue to recover in 2020 and 2021 after huge falls between 2014 and 2019 brought about by the collapse of the infrastructure boom and the completion of several large liquefied natural gas projects.

Non-mining business investment is expected to fall 9.5% throughout 2020 before inching back 3.3% in 2021.



The Australian dollar is forecast to end the year near its present 69 US cents.

After initially diving to a low of 59 US cents as the coronavirus crisis unfolded, it and other currencies climbed against the US dollar from late March as the US response to the crisis faltered.

The price of iron ore has climbed from late March to a high of US$103 per tonne, well above the US$55 assumed in last year’s budget papers.

The panel is expecting most of those gains to be kept, forecasting US$97 by the end of the year, enough to provide one of the few welcome pieces of news for framers of the October budget.

Again, the range of forecasts is wide, from US$64 a tonne (Stephen Anthony) to US$110 (Margaret McKenzie).



Government finances

After ending 2018-19 almost in balance, the budget deficit is expected to blow out to between A$130 billion and A$150 billion in 2019-20, weighed down by about the same amount of stimulus payments.

The forecasts for 2020-21 and 2021-22 are centred around $150 billion and $100 billion respectively.

It’s a hard outcome to pick, in part because it depends on both the needs of the economy and government decisions about how to respond to them. In a report issued on Monday the Grattan Institute called for the government to spend an extra $70 billion over two years.

Forecasts for the 2021-22 budget outcome range from a deficit of $400 billion (Rod Tyers) to a deficit of just $10 billion (Renée Fry-McKibbin).



It’ll be easy to finance. The panel is forecasting a ten-year borrowing cost (bond rate) of just 1.4% per year, and it doesn’t expect it to climb that high until late 2021.

At the moment it’s 0.9%.

The Reserve Bank has committed itself to buy as many bonds as are needed to keep it low. The three major rating agencies have reaffirmed Australia’s AAA credit rating.



A survey of firsts

The 2020-21 survey is the first in 30 years not to ask for forecasts of the Reserve Bank cash rate, and the first since it has been published by The Conversation not to ask for the probability of a recession.

The Reserve Bank’s decision to push the cash rate as low as it conceivably could and leave it there for three years removed the need for the first. Australia’s descent into recession removed the need for the second.

The forecaster who proved to be the most farsighted on the recession was Steve Keen, who assigned a 75% probability to a recession in January at a time when Australia was dealing with bushfires and preparing to deal with coronavirus.

Other forecasters to assign a high probability to a recession (50%) were Julie Toth, Steven Hail, Warren Hogan and Richard Holden.


The Conversation 2020-21 Forecasting Panel

Click on economist to see full profile.

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.

How to avoid cars clogging our cities during coronavirus recovery



Iain Lawrie, Author provided

Iain Lawrie, University of Melbourne and John Stone, University of Melbourne

As we re-open our economy and workers gradually return to workplaces, overall travel will increase. However, the need to maintain social distancing means public transport can’t operate at usual capacity. And fears of crowded public transport will lead to commuters making a much higher proportion of trips in private vehicles – unless they are offered viable alternatives such as the ones we discuss here.

Impact of physical distancing on public transport capacity.
International Transport Forum, OECD

Our initial analysis (as yet unpublished) of Australia’s major cities suggests a shift to cars will produce severe traffic congestion if even a modest proportion of the workforce returns to their usual workplaces during the COVID-19 recovery. In this article, we suggest some public transport solutions to avoid congestion caused by a shift to car travel.




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Coronavirus recovery: public transport is key to avoid repeating old and unsustainable mistakes


Globally, this trajectory is already becoming apparent. As lockdowns are eased, car use is rising much more quickly than public transport use. The latest figures from cities as diverse as Berlin, Los Angeles, Chicago, Auckland and Sydney all show this.

What are the implications of this trend?

First, the shift to private vehicles will be a bigger problem in cities with centres traditionally served by public transport than dispersed, car-dominated regions. Modelling by Vanderbilt University in the US showed an 85% shift of mass transit riders to cars would increase daily commute times by over sixty minutes in New York, but merely four minutes in Los Angeles. This is because public transport serves a mere 5% of journeys to work in Los Angeles but 56% in New York.

In cities that rely heavily on public transport, or even those with car-dominated suburbs but transit-dominated centres such as Sydney and Melbourne, a shift to cars for CBD trips will very quickly overwhelm the capacity of the road network. Pre-pandemic, 71% of trips to the Sydney CBD and 63% to Melbourne’s CBD were on public transport. So, while travel volumes may remain well below pre-pandemic levels for some time, road traffic is recovering faster than other travel modes.

Sydney’s and Brisbane’s road traffic volumes have already returned largely to pre-pandemic levels even while most CBD offices remain empty. Melbourne isn’t far behind. Returning commuters are in for a shock.


Apple Mobility Trends

Apple Mobility Trends

Apple Mobility Trends



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What can we do about it?

Several commentators suggest now may be the time to apply congestion pricing – charging a fee to use roads in peak periods. However, when many people are making travel decisions based on the health risks, such policy may not produce the desired behaviour change.




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The alternative is to improve commuters’ public transport options, rather than trying to price congestion away. The aim should be to allow it to operate more effectively while still providing room for on-board social distancing.

This is no easy task, yet it may be politically and technically easier than rapidly bringing in a comprehensive road-pricing regime. Even with social distancing restrictions, public transport will use roads more efficiently than private cars.

This photo shows how much road space cars, buses and cyclists require to transport an equivalent number of people.
Cycling Promotion Fund/We Ride Australia

The return to work must be gradual and supported by considerable flexibility in working hours. This will help manage peak demands. But on its own it’s not enough if frequent public transport services continue to be offered only during a limited commuter peak.

More services, more often

So, public transport services need to run at high frequencies for many more hours in the day. Some analysts suggest services be run at peak frequencies for most of the day.

Many suburban bus services, particularly direct services along arterial roads, should run much more often than their existing peak offerings. Routes can be tweaked to remove unnecessary detours that lead to slow travel times.




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These frequent, direct services should be supported by rigorous cleaning, visual guidance to maintain separation on platforms and within vehicles, and tools to help identify crowded vehicles.

Most importantly, we need to rapidly create “pop-up” dedicated bus lanes right across metropolitan areas. These lanes allow buses to avoid being held up by increasing traffic volumes. Although bus lanes may reduce capacity for private vehicles, when buses run frequently they are a much more efficient use of scarce road space.

Faster travel times for public transport would, in turn, mean operators could deliver more frequent services with existing fleets and drivers. This would reduce the operational cost of allowing for social distancing.




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Frequent services on these pop-up corridors will provide a critical, time-competitive alternative to driving. Although not without its challenges, implementing a fast and frequent bus network is conceptually straightforward and the cost is modest compared to the congestion impacts it could offset.

This solution will require a nimble and co-operative approach from state and local transport authorities and private operators. Success will mean our transit-centred CBDs and district centres continue to function efficiently.

In the longer term, a fast and frequent metropolitan transit network will leave a lasting positive legacy, supporting carbon reduction and city-shaping investments such as Sydney’s Metro and Brisbane’s Cross River Rail. Failure will lead to crippling congestion that erodes the economic and social strength of our previously vibrant cities.The Conversation

Iain Lawrie, PhD Candidate, University of Melbourne and John Stone, Senior Lecturer in Transport 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.




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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.




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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.

There may not be enough skilled workers in Australia’s pipeline for a post-COVID-19 recovery



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Pi-Shen Seet, Edith Cowan University and Janice Jones, Flinders University

Scott Morrison wants to overhaul the skills workforce to ensure a better post-COVID-19 recovery. But there may not be enough people with the necessary skills to do so. And travel restrictions, which will reduce migration, will only compound the issue.

A Productivity Commission interim report released today found the proportion of people without qualifications at a Certificate 3 level or above decreased from 47.1% in 2009 to 37.5% in 2019. This will not be enough to meet a Council of Australian Governments (COAG) target of 23.6% set for 2020.




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The report also found while the number of higher-level qualifications (diplomas and advanced diplomas) sharply increased between 2009 and 2012, it has since fallen to its 2009 level.

The 2020 target was set out in the 2012 National Agreement for Skills and Workforce Development (NASWD), which identified long-term federal and state objectives in skills and workforce development.

The report noted the skills agreement is no longer fit for purpose, and the A$6.1 billion governments spend annually on vocational education and training can be better allocated to improve outcomes.

What the report found

The National Agreement for Skills and Workforce Development was intended to significantly lift the skills of the Australian workforce and improve participation in training, especially by students facing disadvantage. Several targets, performance indicators and outcomes were agreed to.

These included to:

  • halve the proportion of Australians aged between 20-64 without qualification at certificate 3 level and below, from 47.1% in 2009 to 23.6% by 2020

  • double the number of advanced diploma and diploma completions nationally from 53,974 to 107,948 in 2020.

The commissioners admit some of the targets agreed to were arbitrary and ambitious.

The report says:

If targets are unattainable, they quickly become irrelevant for policymakers. The NASWD’s performance indicators were reasonable general measures but needed to be linked to specific policies to allow governments to monitor progress.

The NASWD’s targets will not be met.

The commissioners state the failure to meet the targets is not an indication the national agreement has failed overall. This is because the targets only looked at those with formal education.

It noted a large proportion of the workforce aged over 25 are more likely to do informal training to increase skills for their current occupation, as opposed to formal training to get a new job.




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About 85% of workers’ non-formal learning is paid for by employers, but government policies are largely silent about this kind of training.

Noting these caveats, the report identified factors that contributed to the failure to meet the targets. These included:

  1. a lack of uniform commitment and execution to meet the reform directions set as part of the original national agreement. This was meant to improve training accessibility, affordability and depth of skills through a more open and competitive VET market, driven by user choice

  2. the reputational damage of the VET FEE-HELP scheme that facilitated rorting of the system

  3. a reduction in governments’ commitment to a competitive training market. This includes a lack of accessible course information for students and inadequate sector regulation

  4. unclear pathways to jobs through the VET system – for example through lack of proper employment advice through school career advisors.

The fall in VET participation also coincided with an increase in university enrolments. This suggests students were choosing university over VET. VET and traineeship funding also tightened from 2014.

What the report recommends

Treasurer Josh Freydenberg asked the Productivity Commission to undertake the review of the National Agreement for Skills and Workforce Development in November 2019, before the bushfires and COVID-19 hit the economy.

The request came a few months after former New Zealand skills minister Steven Joyce released a report and recommendations of his review of Australia’s VET system.

The findings of the Productivity Commission’s interim report appear to dovetail well with those of the Joyce review. This recommended the formation of the National Skills Commission, which can facilitate an overarching national and consistent approach to vocational education and training.




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The interim report’s main recommendation is for governments to consider reforms to make the VET system a more efficient, competitive market. This must be driven by informed choices of students and employers, with the flexibility to deliver a broad suite of training options.

The commissioners also advocate for the use of common methods of measurement among states and territories to achieve nationally consistent VET funding and pricing.

For example, one of the most popular VET courses in Australia is the Certificate 3 in individual support — the course you’d study to work in aged or disability care. Standard subsidies for this course vary by as much as A$3,700 across Australia.

The report calls for more submissions and consultation as part of the next phase of the review.

The initial assumption of the commissioners was that the changing nature of work largely driven by new technology would be the main driver of changes to VET requirements.

But given the disruptions to the economy, and learning delivery having moved online, the commissioners note that while their current options and recommendations are unlikely to change in the general sense, COVID-19 is probably driving longer-term changes to the economy.

They say the pandemic may lead to structural changes in the VET sector which will also be relevant to any future agreements between governments.The Conversation

Pi-Shen Seet, Professor of Entrepreneurship and Innovation, Edith Cowan University and Janice Jones, Associate Professor, College of Business, Government and Law, Flinders University

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

Coronavirus recovery: public transport is key to avoid repeating old and unsustainable mistakes



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Hussein Dia, Swinburne University of Technology

The coronavirus pandemic has affected our cities in profound ways. People adapted by teleworking, shopping locally and making only necessary trips. One of the many challenges of recovery will be to build on the momentum of the shift to more sustainable practices – and transport will be a particular challenge.

Reductions in trips from January to May, measured by change in trip routing requests.
Apple Maps COVID-19 Mobility Trends



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While restrictions are being eased, many measures in place today, including physical distancing and limits on group numbers, will remain for some time. As people try to avoid crowded spaces, public transport patronage will suffer. Thousands of journeys a day will need to be completed by other means.

If people switch from public transport to cars, road congestion will be even worse than before, emissions will soar, air quality will be poor and road safety will suffer.

The capacity of mixed vehicle traffic is much lower than most people realise.
International Transport Forum, OECD. Data from Botma and Papandrecht 1991 and GIZ calculations 2009; CAV = connected and automated vehicles, BRT = bus rapid transit. Source: Synergine for Auckland Transport 2015, adapted from ADB and GIZ 2011; Shladover, Su and Lu 2012

Re-imagining our cities

Cities are repurposing streets to meet higher demands for walking and cycling.

But not everyone can walk or ride a scooter or bike to their destination. Public transport must remain at the heart of urban mobility.

We will have to rethink public transport design to enable physical distancing, even though it reduces capacities.

Impact of physical distancing on public transport capacity.
International Transport Forum, OECD

Public transport drivers need protection. Some responses such as boarding from back doors and sanitising rolling stock are needed but don’t reduce crowding. Crowding at platforms, bus and tram stops also has to be avoided.




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Crowding on public transport puts lives at risk. A recent study that looked at smartcard data for the Metro in Washington DC showed that, with the same passenger demand as before the pandemic, only three initially infected passengers will lead to 55% of the passenger population being infected within 20 days. This would have alarming consequences.

More measures are needed. There are things we need to stop doing or start doing, and others that need to happen sooner.

Increasing capacities by running more services, where possible, will help. Staggering work hours will reduce peak demand. Transport demand management must also aim to reduce overall need for travel by having people continue to work from home if they can.




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Managing passenger flow and decreasing waiting times will also help avoid crowding. Passenger-counting technologies can be used to monitor passenger load restrictions, control flow and stagger ridership.

Passenger-counting technologies can be used to monitor and manage flows.

We need to start trying new solutions using smart technologies. Passengers could use apps that let them find out how crowded a service is before boarding, or to book a seat in advance.

Other solutions to trial include thermal imaging at train stations and bus depots to identify passengers with fever. There will be many technical and deployment challenges, but trials can identify issues and ease the transition.

One solution for transport hubs is thermal imaging technology that detects passengers who have a fever.
Shutterstock

We need to accelerate digitalisation and automation of public transport. This includes solutions for contactless operations, automated train doors and passenger safety across the whole journey.

Public transport also has to be expanded and diversified to be effective in dense areas and deliver social value to residents. In some areas, it may function as a demand-responsive service and be more agile in its ability to transport people safely and quickly.




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Improving resilience

The lessons we have learnt about adapting how we live and work should guide recovery efforts. The recovery must improve the resilience of public transport.

Infrastructure investments, which are crucial for rebuilding the economy, must target projects that protect against future threats. Public transport will need reliable financial investment to provide quality of service and revive passenger confidence.




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The pandemic has shown how fragile urban systems like public transport are in the face of acute stresses.
Shutterstock

Importantly, the harm this pandemic is causing has not been equitable. The most vulnerable and the most disadvantaged have been hit hardest by both its health and economic impacts.

While many people are able to work from home, staying at home remains a luxury many others cannot afford. People who need to return to work must be able to rely on safe public transport.




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Building on momentum

By the time the lockdown is over, many of our old habits will have changed. The notion that we need to leave home to work every day has been challenged. The new habits emerging today, if sustained, could help us solve tricky problems like traffic congestion and accessibility, which have challenged our cities for a long time.

If there’s one principle that should underpin recovery efforts, it should be to make choices today that in future we’d want us to have made. If driving becomes an established new habit, congestion will spike and persist, as will greenhouse gas emissions. Faced with these kinds of challenges, rash “business as usual” measures and behaviours will not protect us from this emergency or future crises.

Cities that seize this moment and boost investment in social infrastructure will enter the post-coronavirus world stronger, more equitable and more resilient.

Let us commit to shaping a recovery that rebuilds lives and promotes equality and sustainability. By building on sustainable practices and a momentum of behavioural change, we can avoid repeating the unsustainable mistakes of the past.The Conversation

Hussein Dia, Professor of Future Urban Mobility, Swinburne University of Technology

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

Rich and poor don’t recover equally from epidemics. Rebuilding fairly will be a global challenge



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Ilan Noy, Te Herenga Waka — Victoria University of Wellington

Since the Indian Ocean tsunami of 2004, disaster recovery plans are almost always framed with aspirational plans to “build back better”. It’s a fine sentiment – we all want to build better societies and economies. But, as the Cheshire Cat tells Alice when she is lost, where we ought to go depends very much on where we want to get to.

The ambition to build back better therefore needs to be made explicit and transparent as countries slowly re-emerge from their COVID-19 cocoons.

The Asian Development Bank attempted last year to define build-back-better aspirations more precisely and concretely. The bank described four criteria: build back safer, build back faster, build back potential and build back fairer.

The first three are obvious. We clearly want our economies to recover fast, be safer and be more sustainable into the future. It’s the last objective – fairness – that will inevitably be the most challenging long-term goal at both the national and international level.

Economic fallout from the pandemic is already being experienced disproportionately among poorer households, in poorer regions within countries, and in poorer countries in general.




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Some governments are aware of this and are trying to ameliorate this brewing inequality. At the same time, it is seen as politically unpalatable to engage in redistribution during a global crisis. Most governments are opting for broad-brush policies aimed at everyone, lest they appear to be encouraging class warfare and division or, in the case of New Zealand, electioneering.

Banda Aceh, Indonesia, after the 2004 tsunami: the impact of disaster is not felt equally by all.
http://www.shutterstock.com

In fact, politicians’ typical focus on the next election aligns well with the public appetite for a fast recovery. We know that speedier recoveries are more complete, as delays dampen investment and people move away from economically depressed places.

Speed is also linked to safety. As we know from other disasters, this recovery cannot be completed as long as the COVID-19 public health challenge is not resolved.

The failure to invest in safety, in prevention and mitigation, is now most apparent in the United States, which has less than 5% of the global population but a third of COVID-19 confirmed cases. Despite the pressure to “open up” the economy, recovery won’t progress without a lasting solution to the widespread presence of the virus.




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Economic potential also aligns with political aims and is therefore easier to imagine. A build-back-better recovery has to promise sustainable prosperity for all.

The emphasis on job generation in New Zealand’s recent budget was entirely the right primary focus. Employment is of paramount importance to voters, so it has been a logical focus in public stimulus packages everywhere.

Fairness, however, is more difficult to define and more challenging to achieve.

While a rising economic tide doesn’t always lift all boats – as the proponents of growth-at-any-cost sometimes argue – a low tide lifts none. Achieving fairness first depends on achieving the other three goals.

Under-prepared and under-resourced: the hospital ship Comfort arrives in New York during the COVID-19 crisis.
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Economic prosperity is a necessary precondition for sustainable poverty reduction, but this virus is apparently selective in its deadliness. Already vulnerable segments of our societies – the elderly, the immuno-compromised and, according to some recent evidence, ethnic minorities – are more at risk. They are also more likely to already be economically disadvantaged.

As a general rule, epidemics lead to more income inequality, as households with lower incomes endure the economic pain more acutely.

This pattern of increased vulnerability to shocks in poorer households is not unique to epidemics, but we expect it to be the case even more this time. In the COVID-19 pandemic, economic devastation has been caused by the lockdown measures imposed and adopted voluntarily, not by the disease itself.

These measures have been more harmful for those on lower wages, those with part-time or temporary jobs, and those who cannot easily work from home.

Many low-wage workers also work in industries that will be experiencing longer-term declines associated with the structural changes generated by the pandemic: the collapse of international tourism, for example, or automation and robotics being used to shorten long and complicated supply chains.




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Poorer countries are in the worst position. The lockdowns hit their economies harder, but they do not have the resources for adequate public health measures, nor for assisting those most adversely affected.

In these places, even if the virus itself has not yet hit them much, the downturn will be experienced more deeply and for longer.

Worryingly, the international aid system that most poorer countries partially rely on to deal with disasters is not fit for dealing with pandemics. When all countries are adversely hit at the same time their focus inevitably becomes domestic.

Very few wealthy countries have announced any increases in international aid. If and when they have, the amounts were trivial – regrettably, this includes New Zealand. And the one international institution that should have led the charge, the World Health Organisation, is being defunded and attacked by its largest donor, the US.

Unlike after the 2004 tsunami, international rescue will be very slow to arrive. One would hope most wealthy countries will be able to help their most vulnerable members. But it looks increasingly unlikely this will happen on an international scale between countries.

Without global empathy and better global leadership, the poorest countries and poorest people will only be made poorer by this invisible enemy.The Conversation

Ilan Noy, Professor and Chair in the Economics of Disasters and Climate Change, Te Herenga Waka — Victoria University of Wellington

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

Childcare is critical for COVID-19 recovery. We can’t just snap back to ‘normal’ funding arrangements



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Kate Noble, Victoria University; Jen Jackson, Victoria University, and Sarah Pilcher, Victoria University

This week, the federal government released a review of a relief package it put in place in April to ensure the early childhood education and care sector remained financially viable and children of essential workers, as well as vulnerable children, could continue to attend.

The review said in the week the relief package was announced

30% of providers faced closure due to a massive, shock withdrawal of families and another 25% of providers were not sure they could ever recover, even once the virus crisis has passed.

Under the emergency arrangements, the government is paying 50% of a childcare provider’s fee revenue up to the existing hourly rate cap, based on the enrolment numbers before parents started withdrawing their children because of the COVID-19 pandemic.

Childcare centres are prohibited from charging families an out-of-pocket fee, with the rest of their costs expected to be recouped through JobKeeper. Or they can limit costs by restricting the number of children in care, while prioritising children of essential workers.

On the release of the review of the scheme – due to end on June 28 – education minister Dan Tehan said the plan had “done its job” with 99% of services remaining open, and most providers saying the emergency response has helped with financial viability.




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The package is far from perfect, and has helped most early childhood services but not all. The review reports a survey of around 54% of providers found the new payment had “at least to some extent” helped 86% of them stay open and retain staff and 76% to “remain financially viable”.

In early May, one provider of aged, disability and early childhood services, Uniting NSW and ACT, reported it was losing A$1 million a month under the scheme.

Other centres reporting heavy losses include those with high numbers of children attending already, and those where a high number of staff aren’t eligible for JobKeeper, such as if they are casuals or on temporary visas.



The Conversation/AAP, CC BY-ND

Some who are unhappy with the current arrangements want to revert to the previous system now. Others say a preemptive snap-back would be a big mistake, risking a second existential threat to the sector.

Dan Tehan has said the government is working on a transition back to the old system which “was working effectively”.

As we navigate uncharted territories over the coming months, the needs and vulnerabilities of children, families and the early childhood education and care workforce must also be at the forefront of our thinking.

Why we can’t just ‘snap back’

One of the main arguments for snapping back to the old system is based on increasing demand for services over the past month. But what if this demand is driven by childcare being free, and withers away once fees are reintroduced, when families are forced to cut costs?

COVID-19 restrictions have resulted in skyrocketing unemployment and underemployment. For many families, the transition back to work may be irregular and unpredictable. A sharp ending of the emergency measures may leave many families unable to access care when they need to get back to work.

On top of this, children’s routines have been disrupted, increasing levels of isolation and anxiety. Many children not previously considered vulnerable will now fall into this category, or become potentially vulnerable.

High quality early childhood education can help reduce the risk of vulnerability.




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Meanwhile, early childhood providers are navigating rapid changes to attendance, staffing, funding and revenue. Under current arrangements, they are managing a steady growth in demand and a known stream of income. Reverting to the previous system will introduce a high degree of uncertainty.

It will also take time and careful planning to define a way forward for the complex diversity of early childhood services. The report on the rescue package highlights how different types of services have experienced COVID-19 in different ways: while 80% of centre-based child care services reported steep declines in attendance, only around half of home-based family day care services did so.

Early childhood educators are also in a tenuous position. They are among the lowest-paid Australians, with high levels of casual employment. Staff turnover is high, which undermines delivery of quality education, given the critical importance of secure relationships to children’s early learning and development.

Funding certainty in the coming months will support job security, which benefits children as well as workers.

A slow transition is the best

Governments’ short-term focus must be on balancing the needs of children and families with economic recovery. This may begin with a gradual return to something like the previous system, adjusted to meet our changed needs.

The current arrangements could be continued until September, followed by a gradual reduction, rather than a rapid rollback. After that we need some simple changes at a minimum:

  1. suspend the activity test, to remove the link between parents’ work or study situation and children’s access, so all families and children can access early childhood services

  2. allow increased absences, so families have the flexibility to keep their children home when they are unwell

  3. improve affordability, with increases to childcare subsidy rates at all income levels to a cap

  4. prioritise the needs of children most at risk, to ensure access for the most vulnerable children.

We must also plan for longer-term reform to build a more stable and sustainable early childhood sector for all Australian children, which is less likely to need rescuing in the event of future shocks. With the rescue package generating calls to permanently remove fees for early childhood services, governments need to remain open to more ambitious reforms in future.




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The Conversation


Kate Noble, Education Policy Fellow, Mitchell Institute, Victoria University; Jen Jackson, Education Policy Lead, Mitchell Institute, Victoria University, and Sarah Pilcher, Policy Fellow, Mitchell Institute, Victoria University

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

Past pandemics show how coronavirus budgets can drive faster economic recovery



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Ilan Noy, Te Herenga Waka — Victoria University of Wellington

With New Zealand’s May 14 budget expected to chart the way out of the economic crisis, Finance Minister Grant Robertson should be looking to the past as well as the future. Finance ministers elsewhere are facing similar decisions, many even more constrained than New Zealand’s.

But the common claim that we live in “unprecedented times” is not entirely true. Social distancing and other dramatic interruptions to our lives are nothing new.

One clear precedent is the SARS epidemic that hit Singapore, China, Hong Kong, and Taiwan in 2003. Other more localised but catastrophic examples, such as the Haiti earthquake of 2010 or the 2004 Indian Ocean tsunami, are also instructive.

What is different is the scale of the current crisis. Economies everywhere are in freefall and unemployment is rising. Gross domestic product figures for the first quarter of 2020 show economic declines not seen since WWII. The second quarter is predicted to be even worse.

The challenge for governments is to manage both expectations and spending to drive recovery. Despite the fast-tracking of so-called “shovel-ready” construction projects, that does not necessarily mean infrastructural spending is a magic bullet.

An alphabet of possible recoveries

There are four plausible recovery trajectories. A V-shaped recovery suggests the affected economies will rebound rapidly after lockdown. A U-shaped recovery entails a similar return to normality but after a longer downturn.

The W describes a second hit to the economy, most likely from a second wave of infections (as happened in the second winter of the catastrophic 1918-1919 flu pandemic) but potentially also caused by misguided economic policies. Most worrisome here would be premature withdrawal of government spending support.

The worst case is L-shaped, in which the economy takes many years to come back.

Recovery from SARS was V-shaped in all the affected economies. While SARS spread to many fewer places and disappeared more quickly than our present nemesis, social distancing in the four affected countries was not dramatically different. Fear at the time was as palpable as it is now.




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Taiwan, Hong Kong and Singapore all experienced a dip in GDP growth in the first half of 2003. But by the third quarter their economies were growing fast again. Statistical analysis we did for the Asian Development Bank found the epidemic did not have any longer-term adverse effect on these three economies.

China is a much bigger country, but even when we looked at its two hardest-hit regions, Guangdong and Beijing, the picture was the same – a V. We could see this from economic data from the Chinese National Bureau of Statistics, and with satellite images of night-time light emitted by urban-industrial areas.

These data suggest there was some re-orienting of economic activity after the SARS epidemic (as observed in the diminished night-light) but very little long-lasting effect on aggregate incomes. The same rebound may be happening right now in Wuhan which emerged from lockdown in March this year.


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SARS affected, drastically but briefly, only a few countries in East Asia (and Toronto, due to travel-borne infection). Each had the institutional capacity and financial resources to successfully mobilise recovery once the infection had been vanquished.

The data from recoveries after other types of disasters tell a similar story. Except for very poor and chaotically-governed places (such as Haiti), countries tend to recover quite rapidly. This is true for Indonesia and Sri Lanka, hardest hit by the 2004 Indian Ocean tsunami. Their recovery was fuelled by generous assistance from abroad and large mobilisations at home.




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Targeted funding and managing fear to recover faster

Two main observations emerge in this rear-view mirror. The first is that the targeting of recovery funding is crucial. After previous shocks, when regions or cities failed to recover completely, it was usually because the recovery was under-resourced or funding was mis-targeted.

Unlike a natural disaster, the damage associated with COVID-19 is not to infrastructure. It is to employment in specific sectors such as tourism and culture. Policies should therefore target the maintenance of labour markets (even if it means sustaining them on life support) rather than spending on more infrastructure.




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“Shovel-ready” projects were critical after the 2008 global financial crisis, when the disruption was largely to the construction/housing sector. A construction injection now will not provide work for most of people who have lost their jobs in restaurants, hotels, retail, or travel.

Spending on better and greener infrastructure, when the existing infrastructure is crumbling or dangerous, is good policy in and of itself. But it will not provide the necessary antidote to our current malaise.

Secondly, recovery depends crucially on expectations. In those cases where the shock significantly increased the fear of future shocks, recovery was slower. Households and businesses were more reluctant to buy and invest.

Without assurances that we have “solved” COVID-19 – with a vaccine or effective control – a full recovery is going to be impossible. The longer it takes, the more our recovery will be shaped like a drawn-out U rather than a V. As the Economist magazine recently put it, we will have a 90% economy.

Without a good public health response we might even risk a W, where a second wave of infection requires further harsh but necessary social distancing.

Without managing expectations about a COVID-free future, and without aggressive but well-targeted government action, the post-pandemic trajectory will look like an L. That will put a far greater burden on future generations than any debt governments might take on now to develop a vaccine or keep businesses afloat and people on payrolls.The Conversation

Ilan Noy, Professor and Chair in the Economics of Disasters, Te Herenga Waka — Victoria University of Wellington

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

The PM wants to fast-track mega-projects for pandemic recovery. Here’s why that’s a bad idea


Elizabeth Mossop, University of Technology Sydney

Our governments are committing taxpayers to further debt as part of a planned recovery from the economic impacts of the coronavirus pandemic. Infrastructure spending is great for economic stimulus, but it has to be the right kind of infrastructure.

These are some of our largest public investments, so we want this public money to work a lot harder to create multiple rather than just singular benefits. As well as quickly providing jobs and the economic benefits of solving the problems of transport or energy supply, stimulus projects need to deliver broad, long-term community value, reduce inequality and help counter climate change.

The focus of fast-tracked infrastructure spending in the pandemic recovery should be many smaller-scale projects that provide these broader benefits. Hence these projects will provide greater value than the transport mega-projects that had already been proposed for economic stimulus.

For example, the high-speed rail project Labor has proposed will help decarbonise travel, but it won’t provide enough jobs in the short or medium term. Major road projects will cut commuting time for some drivers, but won’t provide widespread benefits or longer-term employment. New roads also increase emissions and often damage neighbourhoods.




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Good infrastructure delivers broad benefits

Infrastructure projects are such significant economic engines they can incorporate community improvement without compromising their other outcomes.

The ways in which projects get planned and implemented hold the key. For example, projects should involve local businesses, give hiring preference to long-term unemployed people and use sustainable materials.

Infrastructure planning can integrate multiple functions. For example, water-management infrastructure (for drainage or flooding) can be designed to include open space, tree cover, recreation and cycleways. Streets can be designed as beautiful public spaces that include pedestrians, cyclists and cars, as well as tree canopy and water storage.

Good infrastructure used for employment creation and economic recovery looks like Roosevelt’s New Deal of the 1930s. These programs created a legacy of high-quality public infrastructure across the United States.

A “Green New Deal” approach in Australia could focus on smaller-scale projects, including:

This greenway traverses Sydney’s Inner West municipality.

These types of projects are fast to get going and labour-intensive. They can be implemented in both cities and regional areas. These projects can also build longer-term employment capacity and help with the transition of workers out of fossil fuel industry jobs.




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Bigger isn’t necessarily better

The largest infrastructure projects, like those being proposed, are the riskiest in terms of cost blowouts and often deliver limited social and environmental value. In many instances their claimed economic value is also doubtful, as their costs are modelled inaccurately and their benefits and use are often vastly exaggerated.




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One cause of cost blowouts is that governments are often reluctant to commit to spending in the early stages of major projects. This means commitments are often made before projects are well enough understood. Early spending to explore alternatives, understand impacts and consult widely can often realise projects more quickly and with more predictable outcomes that better serve the public interest.

The Morrison government is promoting the myth of fast-tracking through the cutting of red tape and green tape. This is not the key to faster project delivery. We have a decent system of development regulation, which attempts to balance the business interests of developers against the public good. The current crisis has illustrated very clearly the importance of the public values of liveability, preserving natural resources and easy access to open space and local centres.




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We must hold all our infrastructure projects to higher standards. Robust planning and environmental regulation are crucial to maximise the public benefit of projects. Effective community engagement ultimately leads to smoother implementation and better outcomes. Projects that work within planning regulations move more swiftly into implementation than projects that try to bypass them.

In this pandemic crisis we have seen governments move fast and effectively to change policy and implement large-scale programs to benefit the community. The economic rebuilding forced on us by the pandemic is an opportunity to show the same agility to rethink our approach to infrastructure as an engine to uplift our communities and improve life for all citizens.The Conversation

Elizabeth Mossop, Dean of Design, Architecture and Building, University of Technology Sydney

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

The Reserve Bank thinks the recovery will look V-shaped. There are reasons to doubt it



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

The Reserve Bank’s long-awaited two-year forecasts for jobs, wages and growth are frightening, but I fear they are not frightening enough.

The bank looks two years ahead every three months. The last set of forecasts, released at the start of February, mentioned coronavirus mainly as a source of “uncertainty”.

That’s how much things have changed.

Back then economic growth was going to climb over time, consumers were going to start opening their wallets again (household spending had been incredibly weak) and unemployment was going to plunge below 5%.

The forecasts released on Friday come in three sets – “baseline”, a quicker economic recovery, and a slower recovery.

Baseline”, the central set with which we will concern ourselves here, is both shocking, and disconcertingly encouraging.



Reserve Bank Statement on Monetary Policy, May 2020

On employment, it predicts a drop of more than 7% in the first half of this year, most of it in the “June quarter”, the three months of April, May and June that we are in the middle of.

Thirteen million of us were employed in March, making a drop of 7%, a drop of 900,000. Put differently, one in every 13 of us will lose their jobs.

Harder to believe is that by December next year 6% of the workforce will have got them back.

It sounds like what the prime minister referred to earlier in the crisis as a “snapback”, the economy snapping back to where it was.

Except that it’s not.


Reserve Bank Statement on Monetary Policy, May 2020

Six per cent of a small number is a lot less than 7% of a big number.

The bank’s forecasts have far fewer people in work all the way out to mid 2022 (the limit of the published forecasts) and doubless well beyond.

The unemployment rate would shoot up to 10% by June and take a long while to fall.


Reserve Bank Statement on Monetary Policy, May 2020

The baseline economic growth forecast is also drawn as a V.

After economic activity shrinks more than 8% in the June quarter, we are asked to believe it will bound back 7% in the year that follows.

But that will still leave us with much lower living standards than we would have had, missing the usual 2-3% per year increase.


Reserve Bank Statement on Monetary Policy, May 2020

The reason I fear the baseline forecasts aren’t frightening enough is that they are partly built on a return to form for household spending, which accounts for 65% of gross domestic product.

After diving 15% mainly in this quarter we are asked to believe it will climb back 13% in the year that follows.

Maybe. But here’s another theory. While we’ve been restricted in movement or without jobs we’ve become used to spending less (and used to flying less, and used to hanging onto our cars for longer and hanging on to the money we’ve got).




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My suspicion is that these behaviours can be learned, and we’ve been doing them long enough to learn them.

During the global financial crisis we tightened our belts and then kept them tight for years, saving far more than the offical forecasts expected, in part because we had been shocked and felt certain about the future.

A recovery that had been forecast to be V-shaped looked more like a flat-bottomed boat when graphed. It’s a picture I find more believable than a snapback.

We are unlikley to get back where we would have been for a very long time.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.