Richard Holden, UNSWI don’t often feel sorry for politicians. But having to manage a process that produces forecasts about the next four years of an economy still clawing its way out of a pandemic, and then having to publicly defend those forecasts, is no easy task.
That said, our compassion for the plight of Treasurer Josh Frydenberg shouldn’t stop us judging his budget forecasts. And, like all forecasts, those rest heavily on the assumptions that underpin them.
Core budget assumptions
The core budget assumptions about unemployment and economic growth are relatively rosy. Unemployment is forecast to be down to 4.75% by 2023-23 and 4.5% the year after – both well below pre-pandemic levels.
Real GDP growth is expected to rebound to 4.25% in 2021-22 and then settle down to about 2.5% thereafter. Given we are unlikely to have the population growth of the pre-COVID era, that’s a pretty high rate.
Taking a look graphically at actual and forecast GDP makes it clear why folks are talking about a “V-shaped recovery”. But even the fairly bullish assumptions reveal a recovery where the V isn’t really sharp enough. Call it a “floppy-V-shaped recovery.”
That’s rather disappointing, especially given Frydenberg has fundamentally shifted Liberal party fiscal strategy away from “debt and deficits” and dalliances with austerity, to one that sees government spending at more than 26% of GDP in steady state.
But what is more disappointing is that this increased spending isn’t forecast to translate into stronger employment and wages growth.
The budget forecasts an unemployment rate of 4.5% in 2023-24 and 2024-25. That’s better than pre-pandemic levels, but not all that close to the 4%-or-lower number many economists (including RBA governor Philip Lowe) think might be required to get wages growing meaningfully for the first time since 2013.
The budget forecasts reflect this, with wages growth of 2.25% in 2022-23 and 2.5% in 2023-24 both equal to forecast inflation in those years. That is, real wages growth is not even forecast to begin again until 2024-25—and even then, only barely.
Non-mining business investment is forecast to grow by 1.5% in 2021-22 and then jump by a massive 12.5% in 2022-23. That might reflect a post-COVID investment boom driven by a widely mRNA-vaccinated nation and a raft of government incentives. Or it might just be wishful thinking.
As to immigration, we can expect our borders to be largely shut for the foreseeable future. This is reflected in the budget’s forecast population growth of “around 0.1% in 2020-21, 0.2% in 2021-22 and 0.8% in 2022-23.”
Whether immigration does actually pick up significantly in 2022-23 depends crucially on our vaccination rollout.
If we can reverse the bungled execution to date, overcome vaccine hesitancy, and secure enough Pfizer and Moderna doses (including for boosters) immigration might grow strongly again.
But there are a number of things that have to go right for that to happen. And the government has a poor track record to date on those things.
And then there’s one notable assumption that makes news in every budget: the iron-ore price. The budget papers themselves highlight the importance of it, noting:
“The recent strength in key commodity prices, particularly iron ore, has seen a significant resurgence in Australia’s terms of trade […] As a result, nominal GDP is expected to grow by 3¾% in 2020-21, by a further 3½% in 2021-22 and by 2% in 2022-23.”
The budget assumes the iron-ore price will decline from its current level of over US$200 a tonne, to US$55 a tonne by March 2022. This incredibly pessimistic assumption basically gives the government a buffer on the headline deficit figure. If the forecast of a $99.3 billion deficit in 2022-23 is beaten significantly, it will likely be due to iron ore prices staying high.
The biggest assumption of all
The core economic assumptions discussed above underpin the budget bottom line – a number that used to receive considerably more attention when there was a question of “when” the budget might be back in surplus.
Those days are gone.
Frydenberg has engineered a remarkable shift in Liberal party economic philosophy. While maintaining their brand as “the party of lower taxes, not higher taxes”, they have jettisoned budget-balance fetishism.
What he hasn’t said is that it is actually aiming for a slower recovery from the recession, as far as unemployment goes, than from most recessions in Australia’s history.
That’s both the budget’s explicit forecast and the result of the measures in it.
You would be forgiven for expecting the recovery from this recession to be faster than the recoveries from previous recessions. Previous recessions haven’t involved the government requiring businesses close their doors.
In most recessions the government isn’t able to switch things back on.
Yet Australia’s recovery from this COVID recession is officially forecast to be on the sluggish side, as our graph of the recovery in the unemployment rate after each of the past eight recessions and slowdowns shows.
The budget expects the unemployment rate to peak at 8% in December this year, but then take three-and-a-half years to fall to 5.5% by mid-2024.
That’s an average decline of 0.71 percentage points per year in the unemployment rate.
In the 1990s recession – Australia’s most recent major recession – the unemployment rate peaked at 11.1% in late 1992, then fell to 8.3% by 1996.
That’s an average decline of 0.9 percentage points per year – a good deal faster than expected after this recession.
With, rather than ahead of, the pack
By the standards of past overseas recessions, our recovery is expected to be no more than typical.
We examined 150 past recessions in the countries that make up the Organisation for Economic Co-operation and Development and found that typically unemployment falls by 0.85 percentage points per year – about the same as what Australia expects this time.
This analysis uses all the labour force data kept by the OECD – which in Australia’s case goes back to 1966.
The initial phase of the Australian recovery is forecast to be quite brisk, as you’d expect given the nature of this recession and the budget assumption that a COVID-19 vaccine will be found soon.
After peaking at 8% in late 2020, unemployment is expected to fall to 7.25% by mid-next year. That decline – 0.75 percentage points in 6 months, a 1.5-percentage-point annualised fall – is on the fast side.
We’re removing support too soon
But from there on, the recovery is forecast to stall, particularly in 2022-23 and 2023-24 when only 0.5 percentage points per year is expected to be knocked off the unemployment rate.
The budget papers show that support to date has kept unemployment much lower than it would have been.
Treasury believes that without it the unemployment rate would have peaked at about 13% instead of the predicted 8%.
Which raises the question: why isn’t the government being more ambitious and aiming to bring unemployment down faster?
The rapid recovery in unemployment peters out from mid-2022 because, as this graph shows, the stimulus is set to be withdrawn quickly – the deficit is set to more or less halve next year, and then halve again over the following two years.
Policy decisions made this year actually subtract from the deficit by 2023-24.
And the stimulus is made up of measures not particularly likely to create jobs, such as income tax cuts (where much of the money is likely to be saved rather than spent) and transport infrastructure, which creates fewer jobs per dollar spent than services such as child care, health and aged care.
We shouldn’t be content with a recovery that putters along at a below-average pace.
We calculate that extra stimulus of about $50 billion over and above what was announced in the budget will be needed over the next two years to drive unemployment back down to 5%, a result that would kickstart wages growth nearly two years ahead of the government’s schedule.
Every year that unemployment remains too high is another year that Australians can expect close to zero real wages growth, and another year that Australians young and old will continue to confront a dearth of job opportunities.
Reserve Bank governor Philip Lowe said last week he wanted to achieve more than just “progress towards” full employment.
Former prime minister Paul Keating has launched an extraordinary attack on the Reserve Bank, accusing it of having “one of its dalliances with indolence”, and describing it as “the Reverse Bank”.
Keating, who was treasurer in the Hawke government and once boasted of having the Reserve Bank in his pocket, said the bank’s job was “to help the government meet the task of full employment” and it was failing in this.
He criticised its officials for being “the high priests” of incrementalism, rather than doing what the situation called for.
His outburst, in a statement issued on Wednesday, followed a speech this week by the bank’s deputy governor Guy Debelle who canvassed the pros and cons of options for further monetary policy action if the bank’s board decided it was needed.
These included buying bonds further out along the curve, foreign exchange intervention, lowering rates without going into negative territory, and moving to negative rates.
“Knowing full well that monetary policy can now no longer add to nominal demand – something that now, only fiscal policy is capable of doing, the Reserve Bank is way behind the curve in supporting the government in its budgetary funding measures,” Keating said.
“For a moment, it showed some unlikely form in pursuing its 0.25% bond yield target for three year Treasury bonds and a low interest facility for banks.
“But now, after 600,000 superannuation accounts were cleared and closed down, with 500,000 of those belonging to people under 35 – a withdrawal of $35 billion in personal savings, and further demands arising from the employment hiatus in Victoria, [Debelle] yesterday strolled out with debating points about what further RBA action might be contemplated.”
Keating said that in his office when he was treasurer, the bank was nicknamed “the Reverse Bank”, because it was too slow raising rates in the late 1980s and too slow lowering them in the early 1990s – which gave Australia “a recession deeper than it would have otherwise had”.
As treasurer he’d “worn the cost of the bank’s indolence in the task of smashing inflation”. And as a measure of his giving the bank more discretion, as prime minister he’d worn the “great political cost” of the bank’s rate rises in 1994.
“As history has shown, when a real crisis is upon us the RBA is invariably late to the party. And so it is again,” Keating said.
The bank’s act had two objectives – price stability (not a problem at the moment) and full employment, Keating said.
“The Act says the Bank and the government should endeavour to agree on policies which meet that objective – in this case, employment.”
The bank “should be explicitly supporting the government so the country does not experience a massive fall in employment”, hitting particularly younger workers.
But instead of that, Debelle “conducts a guessing competition on what incremental step the Bank might take to help,” Keating said.
“These are the high priests of the incremental. Making absolutely certain that not a bank toe will be put across the line of central bank orthodoxy.
“Certainly not buying bonds directly from the Treasury – wash your mouth out on that one – what would they say about us at the annual BIS meeting in Basel?
“Not even ambitiously buying sufficient bonds in the secondary market, like the European Central Bank or the Bank of Japan.”
He said the bank should “shoulder the load. And in a super-low inflationary world, that load is funding fiscal policy. Mountainous sums of it.
“In an economic emergency of the current dimension that means putting the orthodoxy into perspective and doing what is sensibly required.”
Like other central banks, the Reserve Bank “has become a sort of deity, where lesser mortals might inquire, however respectfully, what the exalted priests might be thinking or have in mind for their prosperity or the country at large,” Keating said.
“The Governor and his deputies do not wear clerical collars and black suits. But that is the only difference in their comport and attitude.”
What do multiple sclerosis (MS) and the novel coronavirus have in common? Until this week, not much, but a recent clinical trial has shown a reformulation of a drug used to treat MS can potentially also be used to help patients infected with COVID-19.
SNG001 is an inhaled form of a drug called interferon-beta under development by the UK pharmaceutical company Synairgen. Interferon is normally prescribed for the treatment of symptoms relating to relapsing-remitting MS.
But the clinical trial, Synairgen found that when SNG001 was given to patients with COVID-19, it stopped the development of more severe symptoms, accelerated their recovery, and allowed them to leave hospital earlier.
Like other clinical trials for COVID-19 treatments, the results still need to be thoroughly checked before SNG001 is included as a standard treatment for coronavirus. The drug’s key risks (potential for severe depression) also need to be weighed against the potential benefits.
How does it work?
MS is a condition of the central nervous system. The nerve impulses between the brain and spinal cord get blocked or mixed up. It happens because the body’s immune system attacks the protective layers around nerve fibres. The result is a loss of muscle control and balance.
In contrast, COVID-19 is a viral infection that affects a patient’s ability to breathe due to inflammation putting pressure on their lungs.
What both diseases have in common is the activation of the body’s immune response, so a drug that modulates the immune system for one can potentially work for the other.
Interferon-beta (interferon), a naturally occurring protein in the body, is used as an immunotherapy drug to combat relapsing-remitting MS by reducing inflammation and easing the symptoms of the disease.
Other clinical trials conducted in the past for different drugs, such as remdesivir and dexamethasone, required patients to be hospitalised before they were eligible for drug treatment.
In total, 101 patients in a hospital setting were enrolled in the SNG001 trial and were given the drug daily for 14 days. Compared with a placebo, those given SNG001 had a 79% lower risk of developing severe disease.
Patients given the drug were also twice as likely to recover from their infection and were discharged earlier from hospital than those given the placebo.
Before SNG001 becomes standard care for COVID-19 treatment the results of the clinical trial need to be checked by independent scientists.
If the latest results are shown to be reliable, before doctors decide to make SNG001 a part of the standard treatment for hospitalised COVID-19 patients they will need to weigh its benefits against the potential risks.
One of the most important side effects of the drugs is that it can induce depression.
As a result, interferon is used with caution in patients with pre-existing depression or who have suicidal thoughts. These conditions may already be heightened by the pandemic if a potential patient for the drug has lost their job or they are not dealing well with the isolation of social distancing.
This means doctors would need to undertake a comprehensive mental health screen of all patients they consider for SNG001 treatment.
The results of the SNG001 trial are very promising and potentially give us a treatment to prevent those people mildly infected with COVID-19 from developing more severe symptoms and needing hospitalisation.
But the results need to be checked by independent scientists first, and the drug’s benefits need to be weighed against its risk, as the ability to induce severe depression could cause a wave of mental health problems that make matters worse rather than better.
Gone are the days when economic policy was adjusted once each year by the government in the budget and fine-tuned once each month at meetings of the Reserve Bank board.
The coroanvirus means we haven’t had a budget in more than a year. What the Reserve Bank has done to interest rates means its monthly board meetings matter less.
Governor Philip Lowe reaffirmed this week that monetary policy was on hold for the foreseeable future. The bank’s cash rate is as low as it can go (actually well below its 0.25% target) and the bank will only intervene in the bond market if it has to in order to keep bond rates low (which it doesn’t — the demand for even the rush of new bond issues is much bigger than the supply).
It has lobbed the ball to Frydenberg’s side of the court.
The only situation in which it might be brought back into play is if the government ran into funding problems, of which there is no sign whatsoever.
Holding the racket
The treasurer’s problem is sequencing, and we will are likely to get hints on how he’ll play it in the economic statement to be released today.
The first challenge was to limit the damage to the economy from the initial shock near the start of the year — to stop a vicious cycle of weaker spending, plummeting investment and soaring unemployment.
These self-reinforcing crises required a circuit breaker.
The emergency stimulus provided through Jobkeeper and Jobseeker has been a great success at putting a floor under incomes and demand.
The government ensured a basic income for people whose jobs were axed or at risk, kept hundreds of thousands attached to their jobs and bolstered household incomes despite a massive loss of activity. It gets a tick.
But these emergency measures will not get the economy going again once the crisis has eased.
Some argue they will stand in the way of a recovery if they keep people ensconced on benefits or attached to firms without futures.
A tricky transition
Phase two will require genuine fiscal stimulus: not a security blanket of the kind we have had, but a direct injection of money that will spark a new wave of investment and employment.
The trick is to sequence it properly.
The announced tapering of JobKeeper and JobSeeker will cut incomes and cut jobs as firms pay people less and realign staff levels in line with lower subsidies.
The government believes it has got it right, but it is forecasting an 80% drop in JobKeeper payments between September and the end of the year. It might not be a cliff but it is still a very steep slope that will need to be matched by a sharp recovery in economic activity.
It needs to be ready to revise the timetable as needed. Its current projections look like a best case scenario.
An unknowable stage two
The second stage will involve a good deal of spending on infrastructure. But, especially without certainty about immigration, it is hard to tell what will be needed.
The pandemic will have changed the way we work and play. It is not yet clear whether people take advantage of remote working and move out of congested cities. it is not yet clear what it will mean for digital health, digital education and digital shopping.
An even-harder stage three
The final stage will involve structural reforms; alterations to tax settings, regulations and industrial relations. Which is where it gets really hard. It will require not only sequencing but getting agreement across the political divide.
No civil society can base its economic and social structures on the mere desire for efficiency. Fairness and social justice matter just as much, and they can best be guaranteed if the measures are pulled together as a package with trade-offs that protect the values that matter to Australians.
That’ll be Frydenberg’s biggest challenge. The future doesn’t need to be rushed out this week, or in the October Budget, but in the months to come it’ll have to take shape.
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.
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.
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.
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.
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.
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.
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%.
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).
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).
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.
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.
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.
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.
Several commentators suggest now may be the time to apply congestionpricing – 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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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:
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
the reputational damage of the VET FEE-HELP scheme that facilitated rorting of the system
a reduction in governments’ commitment to a competitive training market. This includes a lack of accessible course information for students and inadequate sector regulation
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
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.