Are you better off now? That's Dutton's trick question

For most people, the simple answer to Peter Dutton’s repeated question – are you better off today than you were three years ago? – is “no, I’m not”. But if Dutton can convince us this is the key question we need to answer in this election, he’ll have conned us into giving him an easy run into government.

Why? Because it’s the wrong question. It’s the question of a high-pressure salesman. A question that makes the problem seem a lot simpler than it is. A question for people who don’t like using their brain.

And it’s a question that points us away from the right question, which is: which of the two sides seems more likely to advance the nation’s interests in the coming three years?

Economists have a concept called “sunk costs” – money (or time) that you’ve spent, and you can’t unspend. Economics teaches an obvious lesson: you can’t change the past, so forget it and focus on what you can change, the future.

But, since it’s become such a central issue in this election, let’s dissect Dutton’s magic question. For a start, it’s completely self-centred. Focus on what’s happened to you and your family and forget about what’s happened to anyone else.

Similarly, the implication is to focus on the monetary side of life. Forget about what’s happened to the natural environment, what we’ve done to limit climate change, and what we’ve done about intergenerational equity – the way we rigged the system to favour the elderly at the expense of the young.

Next, Dutton’s question is quite subjective. He’s not asking us to do some calculations about our household budget or to look up some statistics, just to say whether we feel better or worse off.

Guess what? This subjectivity makes us more likely to answer no. As we’ve learnt from the psychologists, humans have evolved to remember bad events more strongly than good events.

This is why most people believe that inflation is much higher than the consumer price index tells us. As they do their weekly grocery shopping, they remember the price rises much more clearly than any price falls. And in the personal CPI they carry in their heads, they take no account of the many prices that didn’t change – which they should, and the real CPI does.

Humans find the bad more interesting and memorable than the good because the bad is more threatening, and we have evolved to search our environment for threats.

In this case, however, objective measurement confirms that most people are right in thinking their household budgets are harder to balance than they were three years ago. There are various ways to measure living standards, but probably the best single measure is something called “real net national household disposable income per person”.

Between June 2022 and March 2024 (the latest quarter available), it fell by 3.6 per cent. It may have recovered a bit in the 12 months since then, but not by enough to stop it having fallen overall.

But that’s just an economy-wide average. We can break it down into more specific household categories. Those dependent on income from wages are worse off because consumer prices rose a little faster than wages – though wage rises fell well short of price rises in the couple of years before Labor came to power. This is a shortfall wage-earning households would still be feeling in their efforts to balance their budgets.

The rise in interest rates since the last election means the households feeling by far the most pain over the past three years are those with mortgages.

This also means those who own their homes outright have felt the least pain. Most people on the age pension have done OK because most of them own their homes and the age pension is fully indexed to the rise in consumer prices.

As for the so-called self-funded retirees, they’ve been laughing. Not only do they own their homes, their super and other investments earn more when interest rates are high.

True, it’s common for elections to be used to sack governments who’ve presided over tough economic times. Be in power during a recession and you’re dead meat. So elections are often used to punish governments, on the rationale that the other lot couldn’t possibly be worse.

But the side that benefits from such circumstances, taking over when everything’s a mess, won’t have it easy getting everyone back to work and having no trouble with the mortgage in just three years.

I can remember when the Morrison government was tossed out in 2022, smarties among the Liberals telling themselves this probably wasn’t a bad election to lose. Why? Because they could see consumer prices had taken off and had further to go. Using higher interest rates to get the inflation rate back down would be painful and protracted, possibly inducing a recession.

This is why Dutton’s question is so seductive to people who don’t follow politics and the economy, and don’t want to use their grey matter. “If I felt the pain on your watch, it’s obvious you’re to blame and you get the sack. Don’t bother me with the details.”

Remember, however, that all the rich economies suffered the same inflation surge we did, all of them responded with higher interest rates, and most suffered rising unemployment and even, like the Kiwis, a recession. But not us.

So let me ask you a different question: over the past three years have you ever had cause to worry about losing your job? Have you spent a lot of time unemployed while you find one? Have more people in your house been able to find work?

Our employment rate is higher than it’s ever been. Our rate of unemployment is still almost the lowest it’s been in 50 years. This has happened because the Albanese government and the Reserve Bank agreed to get inflation down without a recession.

But the price of avoiding recession is interest rates staying higher for longer. If you think Labor jumped the wrong way, kick the bastards out.

Read more >>

Budget deficit perfection would be nice, but among the best is fine

The independent economist and former Treasury officer Chris Richardson, the leader of Treasury-in-Exile and thus chief apostle of fiscal rectitude, does the country a favour with his eternal campaigning to keep budget deficits and public debt levels low.

It works like Defence, where the retired generals do the talking for the serving generals, whose opinions must be expressed only to their political masters in private.

But all those people who, only in recent times, have joined the protest march demanding an end to deficit and debt don’t want to do the country any favours. I’m no great admirer of the Albanese government, but that doesn’t make every criticism of its performance reasonable.

According to these partisans’ version of events, the budget was in surplus and doing fine until this terrible government started spending with abandon, plunging the budget into deficit, where it’s likely to stay for the next decade, leading to ever-rising public debt. So should some great global mishap come along, we’d be in deep doo-doo.

The first thing wrong with this narrative is its implication that the prospect of a decade of deficits is all Labor’s doing. There’s nothing new about budget deficits; the budget’s been in deficit for more than two in every three years in the past half-century.

What’s more, Treasury was projecting a decade of deficits in then-treasurer Josh Frydenberg’s budget before the last federal election in 2022. So why don’t I remember the people who profess to be so worried now, expressing much concern then? Surely not because debt and deficits only matter when you’ve got a Labor government?

Actually, and as Treasurer Jim Chalmers never tires of reminding us, the projected decade of deficits and rising debt we’re told about today isn’t nearly as bad as the one we were shown back then – the one that didn’t seem to worry anyone.

Why was the projection three years ago so much worse than this one? Because Treasury’s forecasts and projections soon became woefully wrong. The budget deficit of $78 billion it was expecting in 2022-23 turned out to be a surplus of $22 billion. For the following year, the expected deficit of $57 billion was a surplus of $16 billion.

That’s an improvement of more than $170 billion right there. And because this hugely better outcome came so early in the decade, it also meant a huge reduction in the feds’ projected annual interest bill.

But while Chalmers is wrong to claim so much credit for this astonishing turnaround, his critics are wrong to give him none. They dismiss this vast improvement in the debt outlook as nothing more than good luck.

Huh? Rather than falling, as Treasury always assumes they will, iron ore and coal prices took off, so mining company profits and company tax payments boomed.

That’s only half the story, however. Treasury failed to foresee that the economy would return to near full employment – and pretty much stay there to this day, despite the big increase in interest rates intended to get the inflation rate down.

This meant a record proportion of the working-age population in jobs, earning wages and paying income tax. As well, the inflation surge meant a lot more bracket creep than expected.

So, remembering the Albanese government and Reserve Bank’s joint policy of seeking to get inflation down without inducing a recession, you have to say there’s been an element of good management as well as good luck, for which Chalmers and Albanese deserve some credit.

Chalmers gets credit for saving rather than spending most of the government’s higher-than-expected tax collections – something that wouldn’t have happened if Labor had been spending as uncontrollably as the partisan critics claim.

Much effort has been put into demonstrating that government spending is “out of control” and will continue that way for a decade unless something’s done. But analysis by Dr Peter Davidson of the Australian Council of Social Service gives the lie to such claims.

Davidson measures budget spending by the average annual increase after adjusting for inflation and population growth – real spending per person. Over the 27 years to 2018, the long-term average increase was 1.7 per cent a year.

But under the Abbott and Turnbull governments from 2014 to 2018, there was a period of budget austerity when the spending increase averaged just 0.1 per cent a year, as backlogs were allowed to build up and deficiencies were ignored.

Then, during the Covid response period from 2018 to 2022, spending grew by an exceptional 2.6 per cent a year. Now, over the six years to 2028, spending growth is expected to average 1.3 per year.

So claims of Labor’s profligate spending are themselves on the profligate side. It’s here that the critics move from partisanship to self-interested ideology. Their obsession with government spending comes from their ideology that, while all tax cuts are good, all spending increases are bad.

Why are they bad? Because they increase the pressure for higher taxes and reduce the scope for tax cuts. A decade of deficits caused by excessive tax cuts would be OK, but one caused by trying to ensure the punters got decent education, healthcare and social security is utterly irresponsible.

The final respect in which decade-of-deficits bewailers are wrong is their claim that our government’s financial position has us sailing close to the wind. Rubbish.

As former top econocrat Dr Mike Keating advises, if you take the debt of all levels of government in 2024, our gross public debt is equivalent to just 58 per cent of our gross domestic product. This compares with the Euro area on 90 per cent, Britain on 103 per cent, Canada on 105 per cent and the US on 122 per cent.

Much of the credit for our relatively low level of debt and deficit should go to decades of preaching by Treasury and its alumni, including Chris Richardson. But though they sometimes imply we’re at risk of being dangerously overloaded with debt, what they’re really trying to do is maintain our longstanding record as only moderate drinkers.

Read more >>

Budget to give the economy a push next financial year

By MILLIE MUROI, Economics Writer

If there’s only one thing you gleaned from the budget – and it is the new tax cuts – that’s exactly what the government wanted.

The clock is ticking for Prime Minister Anthony Albanese, who, at the time of writing, was expected to call an election as early as Friday. That means a sweetener – such as a promise to let you keep more of your pay – is perfectly timed to nudge voters its way.

But the move also doubled as a distraction from something Labor would rather not talk about: the fact the nation’s finances will be in the red for the next decade despite a turnaround in the economy’s health.

This isn’t the end of the world, but with most of its major policies already announced in preparation for the election, the government knew it needed to give the press something good to latch onto when it unveiled its budget on Tuesday.

The tiny tax cut – the equivalent of about $5 a week for most taxpayers – due to kick in next year, was a sure-fire way to make a good impression.

But the budget revealed a bit more than just a cute tax cut. It also painted a picture of the state of the economy and the government’s game plan.

“Fiscal policy” is the government’s way of steering the economy by changing how much it spends and collects in tax. When the government increases its tax collections by more than it increases its spending from year to year, it’s choosing a “contractionary” stance (one that slows down the economy by taking more money out of it than the government pumps in).

When the government increases its spending by more than it increases its tax collection, it is adopting an “expansionary” stance (stimulating the economy by pumping more money into it). That’s the position taken by the government this year.

Turning to a page in the budget papers many economists call the “table of truth” shows us how the budget position for this financial year (and expectations for future years) has changed from previous forecasts – and what the biggest drivers are.

The “parameter variations” in this table tell us how cyclical factors – things the government has little control over – affect the budget. For example, lower global interest rates over the next few years are expected to shrink the interest rate bill paid by the government despite its growing debt.

AMP chief economist Shane Oliver says higher commodity prices and employment were the kind of parameter variations that helped deliver the government two back-to-back surpluses in 2022-23 and 2023-24.

Then there’s the effect of government policy decisions that weighed down the budget this financial year (2024-25) by $137 million more than was expected back in December, mostly because of an increase in spending on things such as cheaper medicines. This affects what’s called the “structural” part of the budget.

Next financial year, 2025-26, the government’s decisions will drain roughly $7 billion more than previously expected. That’s because it has made new promises such as earmarking $8 billion to boost the amount of bulk-billing and a six-month extension of electricity bill relief at a cost of $1.8 billion.

But improved economic conditions next year should help top up the budget by $12 billion. That’s mostly because of what’s called “automatic stabilisers”, which affect how much money comes into – and leaves – the government’s coffers, adjusting automatically to changes in the speed of the economy.

When business is booming and incomes are rising, for example, people pay more in tax, meaning more cash gets swept into the government’s hands. When the economy gets sluggish and people lose their jobs, the amount of tax flowing in falls.

As Betashares chief economist David Bassanese notes, the government is assuming (among other things) that there will be more people in jobs over the next few years, meaning there should be more income tax flowing in.

The government is also expecting economic growth to pick up and inflation to stay around the 2 per cent to 3 per cent target range, while slightly tweaking down its unemployment forecast to 4.25 per cent over the next four years.

Most of the savings, though, will be spent by the government, leaving the budget only a few billion dollars better off than expected back in December over the next four years – and still in deficit.

At the time of the mid-year budget update, the coming financial year was expected to have a $47 billion deficit – which is 1.6 per cent of GDP. Now, because of measures in the budget and changes in the government’s forecasts, it’s going to be $42 billion, or 1.5 per cent of GDP. The deficit is still a lot bigger than it was last financial year.

Now, it’s worth noting the Coalition, in 2022, also had deficits (that is, spending exceeding revenue) laid out for 10 years. As independent economist Saul Eslake points out, neither side of politics really wants to have the tough conversation of how to fix this problem when there’s growing demands for spending in areas such as healthcare and defence – and especially not before an election.

But the government isn’t the only major player when it comes to managing the economy. The Reserve Bank is also a heavyweight. It doesn’t have the same spending or tax powers, but it uses a tool called “monetary policy” – which you might know better as interest rates.

Like the government’s fiscal policy, monetary policy can be expansionary when interest rates are dropped (because it encourages spending and investment), or contractionary when interest rates are increased.

For the past few years, the bank has been cranking up interest rates in an effort to rein in inflation. For the first time since mid-2022, the bank in February notched down interest rates from 4.35 per cent to 4.1 per cent, moving towards an expansionary stance. Why?

Because it reckons, like the government, that prices are now rising slowly enough, and demand has softened enough relative to supply, to indicate the economy is no longer running too far ahead of its capacity.

The budget is unlikely to have much sway on the Reserve Bank’s forecasts or coming rate decisions. The spending changes were modest, the deficits have been flagged for months and the government’s forecasts aren’t drastically different to what the bank is expecting.

But if the outlook for the economy over the next few years is as rosy as the government is expecting, there’s a case for whoever is in charge in future years to ramp up efforts to return the budget to a surplus, or at least a neutral position, earlier.

That doesn’t have to mean drastic cuts to spending. It could mean changing the way the government collects revenue by introducing an inheritance tax or reducing the capital gains tax discount, and pursuing bolder productivity-boosting measures (Labor’s ban on non-compete agreements is a good start).

In the meantime, the budget for this financial year is expected to be nearly $28 billion in deficit. In the coming year, that deficit is expected to increase to $42 billion. This is an increase equivalent to 0.5 per cent of GDP, making the stance of fiscal policy adopted in the budget mildly expansionary.

Read more >>

The government is timid and uninspired. This budget is a perfect fit

If you’re having trouble working up much interest in the budget, don’t feel bad. It’s not you, it’s the government. So much fuss is made about the annual federal budget that we expect it to be full of major announcements. Well, not this one, and not from a government that never wants to rock the boat.

It is, however, a budget we’ve wished on ourselves. We’ve made it clear that, while ever we’re feeling pain from the cost of living, we’re not much interested in anything else, and an unambitious government has been relieved to take us at our word.

Most of the measures in the budget are small cuts to various charges that affect households’ budgets. The government will be spending more to encourage GPs to bulk-bill their patients and to cut the maximum cost of a pharmaceutical prescription to $25 a pop.

It will extend the electricity bill rebate for the last half of this year, yielding households a saving of $150.

And not forgetting the big one that will make all the difference to the cost of living: indexation of the excise on draught beer will be paused for two years. Anyone who can see the saving per glass gets a prize for exceptional eyesight.

All this is to be done just as soon as we vote to re-elect the Albanese government – except that Peter Dutton has promised a Coalition government would do the same.

Of course, all these measures to ease the cost of living have already been announced, with one exception: a two-stage cut in income tax. Who knew? Surely, that’s something to get excited about?

Well, yes, until you examine the details. When Treasurer Jim Chalmers says the tax cuts are modest, he’s not exaggerating.

It boils down to this: in 15 months’ time, July next year, everyone earning more than $45,000 a year ($860 a week) will get a tax cut of a bit over $5 a week. A year later, they’ll get a further cut of $5, taking it up to $10.30 a week. Part-timers earning between $350 and $860 a week will get an initial saving of up to $5 a week.

Even with this last-minute addition, it’s not hard to believe that, until Cyclone Alfred intervened, Labor was hoping to hold the election in April and leave the budget until later. Why did the delayed election date prompt it to go ahead with a budget when it had nothing much to announce? Law and practice. It had to.

Still, budgets also tell us the government’s latest forecasts for the economy and for the budget bottom line: is the government expecting to spend more than it raises in taxes, or less? More. Every financial year for the next 10.

So the government foresees a decade of budget deficits and further borrowing to cover those deficits. Does it have any plan to correct this? Not that it’s telling us about. My guess is that its policy is to worry about that only after it has been re-elected. If it isn’t, good luck, Mr Dutton.

But since we can’t see further than the cost of living, how are we doing? On the face of it, we’re well over the worst. Over the year to December, consumer prices rose by a modest 2.4 per cent.

The rate of inflation is forecast to stay low, meaning the Reserve Bank is likely to keep cutting interest rates in coming months by a total of 1 percentage point or so, which will take a lot of pressure off people with big mortgages.

The government expects wages to rise a bit faster than consumer prices which, if it comes to pass, will ease the cost of living to a small extent. But if many people still feel it’s a struggle to pay their bills, I won’t be surprised.

Why not? Because, over the five years to last December, consumer prices rose by about 4.5 per cent more than wages did. Until that “wage deficit” is closed, many people will still be feeling the pinch.

This makes it all the more important to understand why the government’s move to continue its energy rebate for another six months isn’t as good as it sounds.

The rebate – which is temporary and paid directly to your electricity retailer – began from July 1 last year. It thus caused quarterly electricity bills to be $75 less than they otherwise would have been.

Its extension for the last two quarters of this year won’t stop your bills being higher than they were because your retailer has increased its prices. But it will stop your bill also being $75 a quarter higher than otherwise. Thanks to generous Anthony and Jim, that unpleasant surprise won’t come until you get your first quarterly bill in 2026. (Come to think of it, maybe the new tax cut is timed to ease the pain of higher power bills.)

As for Trump and his planned trade war, the T-word doesn’t get a mention. Rather, Chalmers worries about “heightened global uncertainty” and “escalating trade tensions”. Why the obfuscation? Maybe Chalmers wants us to see what a great job the government’s done fixing the cost of living and doesn’t want that terrible man raining on his parade.

Actually, it’s too early for concrete actions. We don’t yet know how stupid Trump intends to be, let alone whether the other big economies intend to worsen it by giving as good as they get (otherwise known as cutting off your nose to spite your face).

So right now is the time to think hard about our options, not announce a response. We do know our government won’t be tempted to retaliate, and Chalmers is right to say we must make our economy more resilient to shocks from overseas.

But spending on a new “buy Australian” campaign? It may make uninformed voters feel better, but I doubt it will fix the problem.

This government is timid, uninspired and uninspiring. This budget fits it perfectly.

Read more >>

It's official: supermarkets are overcharging. So change the subject

Why does a government release a highly critical report on the conduct of Woolworths and Coles on the Friday before a budget that will lead straight into an election campaign? Short answer: not for any worthy reason.

One worthy reason could have been to show Anthony Albanese and Treasurer Jim Chalmers really wanted to do something about fixing the cost of living, by making the question of what we should do about our overcharging grocery oligopoly a major issue for discussion in the campaign.

Since the remedies proposed by the Australian Competition and Consumer Commission in its report seem so inadequate, should the two grocery giants be broken up? As, indeed, Opposition Leader Peter Dutton says he would do if elected.

As the business press so indelicately put it, the competition watchdog’s mild-mannered recommendations despite all its evidence of what the punters see as “price gouging” meant the supermarket giants had “dodged a bullet”. But should they have? Let’s discuss it.

Sorry, I’ve been observing the behaviour of politicians for too long to believe Labor’s motives for releasing the report at such a time could possibly be so pure. It’s more likely the reverse: Labor wants to close the issue down.

What Labor did last week looks suspiciously like what’s known in the trade as “taking out the trash”. When you’ve got an embarrassing report you hope won’t get much notice from the media, you release it on a Friday, when the media’s busy packing up for the weekend. The reporters ought to return to the topic on Monday, but they don’t because of their obsession with newness. Spin doctors 1; press gallery 0.

Or governments can achieve the same result by releasing an embarrassing report at a time when everyone’s attention is turned to a much bigger issue – say, a budget, or an election campaign.

But why didn’t Labor just keep the report to itself until after the election? Because, I suspect, it wanted to show it had been on the job, investigating complaints about supermarket overcharging.

And it probably wanted to arm itself to reply to Dutton’s promise to break up the two giants. “We had the competition watchdog investigate the matter, and it explicitly declined to recommend divestment. But it did make 20 recommendations, and we’ve accepted them all.”

(The last time I heard that one was before the 2019 federal election, when the Morrison government released the report of the royal commission into misconduct in banking and said it had accepted all its recommendations. After the election it dropped many of them.)

But if even Labor isn’t game to touch the thought of breaking up Coles and Woolies, why are the Liberals promising to do it? Because they wouldn’t really.

Why does the notion of divestment frighten Labor? Because it doesn’t want to get offside with business. However, in the case of the two supermarket giants, their interests are defended inside Labor’s corridors of power by their union, “the shoppies”, aka the Shop, Distributive and Allied Employees Association.

Trouble is, the report’s findings show there’s a lot to try sweeping under the carpet. The two chains account for two-thirds of all supermarket sales, and their market share has increased since 2008 despite the advent of Aldi. Their profitability is among the highest in the world and their profit margins have increased over the past five financial years.

“Grocery prices in Australia have been increasing rapidly over the last five financial years,” the report says. “Most of the increases are attributable to increases in the cost of doing business across the economy, including particularly production costs for suppliers, which has increased supermarkets’ input costs.

“However, Aldi, Coles and Woolworths have increased their product [margins] and earnings-before-interest-and-tax margins during this time, meaning that at least some of the grocery price increases have resulted in additional profits.”

So if the Libs don’t seize on the report’s findings to step up their claim to want to do something real and lasting about the cost of living, it will be a sign they’re not genuine in their professed desire to break up the grocery oligopoly. A sign both sides of politics want the report and its disturbing findings buried ASAP.

But it’s not just the political duopoly that doesn’t want to know about the pricing power of the grocery market’s big two. Most of the nation’s economics profession don’t want to think about it either. Why not? Because it’s empirical evidence that laughs at their conventional model – whether mental or mathematical – of how the economy works.

There’s a host of contradictions in their model, and the profession long ago decided that the easiest way to leave its beliefs unchallenged and unchanged was to avoid thinking about them. (And for all those economists snorting with derision as they read yet more of Gittins’ nonsense, I have five words: “theory of the second best”. Those words strike terror into the heart of every conventional economist.)

Economists divide their discipline into micro (the study of how individual markets work) and macro (study of how the whole market economy works), but they’ve given up trying to make the two approaches fit together. This groceries report is a classic example of how the two lines of thinking don’t fit.

Every microeconomist studying “imperfect competition” (aka “industrial organisation”) knows oligopoly brings market power and allows firms to avoid competition on price. But every macroeconomist assumes – explicitly or implicitly – that market power isn’t a relevant problem.

As we saw with the conventional wisdom on the domestic causes of the recent inflation surge, the Reserve Bank assumed it was caused by excessive monetary and budgetary stimulus. That is, it was caused by “demand-pull” not “cost-push” inflation pressure.

The fact that, through our own neglect, we have one of the most oligopolised economies in the developed world, is assumed away. We’ve allowed our economy to become inflation-prone, while economists in general, and the supposedly inflation-obsessed Reserve Bank, have said not a word.

But not to worry. We’ll compensate for our negligence by punishing people with home loans all the harder.

Read more >>

Trump is making a huge blunder. Here's how we seize the moment

By MILLIE MUROI, Economics Writer 

Eventually, Donald Trump will backpedal. Economists get plenty wrong, but one thing most believe – and get right – is that widespread tariffs are stupid. Why? Because they create more losers than winners.

Trump is smart enough to know this. But he’ll look to twist arms with his tariffs until some of his demands are met (seemingly at the top of his wishlist: Mexico, Canada and China curbing illegal border crossings and drug cartels). He’s betting on this happening before Americans start to notice their living standards drifting into the gutter.

For Australia, now’s the time to swing. Not at Trump, but towards the neighbours we’ve neglected. To its credit, the federal government isn’t playing into the president’s games: as Treasurer Jim Chalmers said this week, the tariffs on Australian steel and aluminium are disappointing, but our response will not be to raise tariffs on the US in a race to the bottom.

Why? Because taxing imports backfires. Tariffs make imports more costly for consumers as well as businesses relying on imported fuel, ingredients or goods to make or sell their products. Sure, tariffs on steel might shield steel producers in the US, but it will stop those workers and resources from flowing to more efficient areas – and at the expense of Americans needing steel to build (and buy) machinery, houses and cars.

Remember – the reason we trade is to specialise in things we’re better at doing or producing than others. For Australia, these are mostly resources we dig up and ship off. Iron ore accounted for more than one-fifth of our exports by value in 2023-24, followed by coal and natural gas, both at about one-tenth each. We can then use the money we make to buy the things we’re less good at making.

That includes cars. We produced them for decades in the 1900s, but eventually the Australian car manufacturing industry stalled and shut up shop in 2017. It was just too costly to continue pumping out cars, especially when we could ship them in and focus on the stuff we could produce better than everyone else. In 2023, cars made up 6 per cent of our imports, just behind the one-tenth spent on globetrotting and similar share spent on petrol.

Luckily for Australia, a drop in exports to the US isn’t going to hobble us. Only about 6 per cent worth of our exports were destined for the US in 2023 – far less than the one-third shipped up to China and 12 per cent sent to Japan. China’s appetite for Australian exports is mostly for commodities such as iron ore, natural gas and gold.

However, slapping tariffs on US imports to Australia would take a toll on us. While one-quarter of the value of our imports comes from China, about one-tenth flows from the US and another tenth from Japan. Responding to the US with tariffs of our own would make machinery, planes and pharmaceuticals, among other things, more expensive.

One thing that has kept Australia in Trump’s good books, at least until recently, has been the fact we have a trade deficit with the US. That is, we import more from the US than we export to them. The US, in turn, has a trade surplus with us: they export more to Australia than they import to us. But does this really matter?

Well, not really. For example, Australia had a more than $110 billion trade surplus with China and $30 billion trade deficit with the US in 2023. Neither of these things is necessarily “good” or “bad” because both importers and exporters benefit from trade.

But a big trade deficit or surplus can suggest if a country is especially reliant on another country for supplies or income – and therefore more at risk to shocks such as tariffs.

Trump’s tariffs – and threat of more to come – are a chance for Australia to branch out from its biggest trading partner.

It’s not the first time we’ve done it. In the 19th century, Australia was heavily reliant on the UK as a destination for our agricultural and mineral exports. As the UK shifted towards a more protectionist economy with high tariffs in the early 1900s, and stopped giving Australia preferential tariff treatment, we shifted towards some of the countries which are, today, among our biggest trade partners, including the US and those in northern Asia.

Whether Trump stubbornly keeps his foot on the tariff pedal or not, Australia has a good opportunity to build stronger ties with countries in South-East Asia which have expanding economies, growing middle-class populations and are geographically closer.

Many of these countries, including Vietnam, Taiwan and Thailand – which are among those most likely to be hurt by Trump’s tariffs because of the large amount they export to the US – will probably also be more open to strengthening ties with neighbours in the Asia-Pacific. It also makes sense to build stronger ties with our neighbours from a strategic geopolitical perspective as China poses a growing security threat to the region.

The government is already looking for ways to expand free-trade agreements in South-East Asia and reviewing ways we can work more closely with the region. But taking action now is crucial.

A recent visit to Vietnam opened my eyes to egg and coconut coffees (I now make one most days after decades of believing I didn’t like coffee), but the country is also a growing player in pharmaceuticals, making prescription medicines and turning into a manufacturing hub as it transitions away from a primarily agricultural economy.

Vietnam will not, for the foreseeable future, be a replacement for the US: a clear world leader in pharmaceuticals and far advanced in manufacturing. But investing in the capabilities of countries in South-East Asia, partnering with them and fostering connections with its people – including drawing on ties and expertise held by immigrants from the region who can provide insight – is important.

Like past shifts, pivoting away from old friends won’t be a quick process. It will take time, investment and some pain to focus on strengthening trade and ties with new countries, many of which are facing their own challenges and growing pains.

We’ve got the right idea when it comes to exercising restraint on tariffs of our own. But whether Trump backs down soon or not, Australia needs to play a longer game when it comes to trade.

Read more >>

The outlook for house insurance is much worse than we're being told

The big news on house insurance this week was the response of the insurance industry’s peak body to a parliamentary committee’s extensive criticisms of its treatment of people claiming on their policies after the massive floods of 2022.

The Insurance Council of Australia accepted some of the committee’s recommendations, announced an “industry action plan” and generally promised to be good boys in future. But the consumer groups were unimpressed.

Drew MacRae, of the Financial Rights Legal Centre, said the insurers “have a long way to go to restore trust and confidence in a sector that systematically failed customers during the 2022 floods. Today’s announced plan to get there is welcomed, but ‘trust us’ just won’t cut it.”

Meanwhile, in their pre-election campaigning, Anthony Albanese and Peter Dutton are as one in portraying our insurance problem as a matter of misbehaving insurance companies.

Asked if he accepted a journalist’s claim that the companies had doubled premiums in recent years, “had plenty of money” and “are ripping us off”, Albanese flatly agreed. “We will certainly hold the insurance companies to account,” he added.

Dutton’s response was to threaten to split up the big insurance companies – until wiser heads in his team calmed him down.

Sorry, all this is delusional for some and, for others, a knowing attempt to mislead us on the seriousness of the problem. Have the insurance companies been behaving badly? Yes. Should they be forced to treat their customers fairly? Of course.

But will that fix the problem? No. Have the companies been ripping us off, putting up premiums just to increase their profits? No. They’ve been grappling with a problem they know they can’t solve: you can’t insure against climate change.

The cost of house insurance has been rising rapidly for several years because more bushfires, cyclones, storms and floods have led to more claims. We know that continuing climate change will cause extreme weather events to become more frequent and intense.

So the great likelihood is that house insurance premiums will just keep rising rapidly. The outfit that’s doing most to alert us to the deep trouble we have with insurance is the climate campaigning Australia Institute. Its recent national poll of 2000 people found that while 78 per cent of home owners said their home was fully insured, 15 per cent said they were underinsured and 4 per cent said they were uninsured.

As house insurance premiums rise, more people will become underinsured – many with no insurance against flood damage, for instance – and more will be uninsured. Many of the latter will be people whose homes the companies have refused to insure.

The insurance companies know what’s coming, as do the banks and the government. They know what’s coming, but they don’t want to talk about it before it happens, mainly because they don’t know what to do about it.

Remember, insurance is an annual contract. So if I’m confident there’s little chance of your house being destroyed in the next 12 months, I’m happy to give you the assurance of insurance. But when, sometime in the future, I decide you’re a bigger risk, it will be a different story.

The point is, there’s no magic in insurance. It can do the possible, but not the impossible. The way insurance works is that, if I can gather a “pool” of many thousands of home owners, each with only the tiniest risk of having their house burn down, I can promise all of them that, in return for a modest premium, they’re all fully covered in the event of a major mishap.

A few of them will have such a mishap, but I can pay them out from the pool of premiums and still have enough left to make it worth my while being in the insurance business.

Once the risk of your home coming to grief becomes less than tiny, however, the game changes. When more than a few people in the pool make claims, I make no profit, or maybe a loss. So I can start by making owners with bigger risks pay more than those with low risks, but once your risk is too high, I can either charge you a premium that’s impossibly high, or just refuse you insurance.

Because of their ever-growing record of claims, the insurance companies are well-placed to make a reasonably accurate assessment of how risky it is to cover your house – even to the point of charging more in some parts of a suburb than others.

This means, of course, that home owners in some parts of the country will be charged far more than others. Premiums will be highest in northern Australia, where cyclone risk is higher, but also in areas where flooding or bushfires are likely. And even people living well away from harm in the inner city will be paying more to help out.

All this is why we should be doing more – and have been doing more this long time – as our part in the global effort to limit climate change. But what should we do to reduce the damage that’s arrived or is on its way?

Well, certainly not having the government subsidise insurance. That would just encourage people to keep doing what they should stop doing. Taxpayers’ money should be used only to help people get away from the risk of fires and floods.

Just as fighting a fire is easier than fighting a flood, bushfires are less difficult to get away from than floods. We must start by preventing anyone else building in risky areas.

Then we need to move people off the flood plain. As for Lismore, the whole town needs to be moved to higher ground.

But here’s a tip. Don’t hold your breath waiting for Albanese or Dutton to raise these issues in the election campaign. That’s not the way losers behave. Much easier to shift the blame to the greedy insurance companies.

Read more >>

Argy-bargy on the way to next week's off-again, on-again budget

According to the business press, Anthony Albanese was desperately hoping for an early election so he could avoid next week’s budget and the drubbing he’ll get when Treasurer Jim Chalmers is forced to reveal projections of a decade of budget deficits.

If you think that, you don’t know much about budgets. But, more to the point, nor do I expect to believe the budget’s forecasts for the economy in 2025-26.

The first reason I don’t believe Albanese was living in fear of having to reveal a decade of deficits is that, although the business press may be shocked and appalled by budget deficits, the voters have never been. That will be particularly so at a time when all they care about is the cost of living.

The business press and the rest of the partisan media will make a great fuss, but the punters won’t care – just as they didn’t when, in the previous government’s last budget of March 2022, treasurer Josh Frydenberg revealed his own projections of a decade of deficits.

Funnily, I don’t remember the business press making a big fuss back then, perhaps because it only feels a need to worry about deficits when a government of the wrong colour is in power.

But if you’re wondering why, three years later, we still face a decade of deficits, I’ll give you a clue: what the two projections have in common is the stage 3 tax cuts. If all you care about is balancing the budget, the tax cuts were unaffordable then, and they’re still unaffordable now.

Of course, the “Trumpist” logic of big business is that tax cuts are always responsible, whereas increased government spending, for any purpose, is always irresponsible.

Another reason for doubting that Albanese thought having an economic statement rather than a full budget would allow him to avoid admitting to the prospect of a decade of deficits is the requirement under the Charter of Budget Honesty for the secretaries of Treasury and Finance to produce a PEFO – a pre-election economic and fiscal outlook statement. That statement would have revealed. . . the projected decade of deficits.

What the press gallery seems not to know is the reason for the modern practice of governments providing an economic statement immediately before announcing an election – unless, of course, the election is called immediately after a budget’s been delivered, as will happen next week for the third election in a row.

Why must the officials’ PEFO always be preceded by a government economic statement in some form? So an excitable media won’t leap to the conclusion that any deterioration in the budget balance since the previous government statement represents the econocrats revealing something their political masters were hiding.

Guess what? The politicians’ statement and the PEFO a week or two later are always almost identical. (And I bet it was the econocrats who suggested the idea to the pollies. The last thing the bureaucrats want is to embarrass the duly elected government of the day.)

But enough already on the politics of budgets. Better get to some actual economics. I don’t expect to believe the economic forecasts we see in next week’s budget. Why not? Because they’re highly likely to be wrong. Economists are hopeless at forecasting even just a year ahead because the models they rely on – whether mental or mathematical – are so woefully oversimplified.

That being so, the forecasters’ rule of thumb is to predict “reversion to the mean”. If last year was below average, this year growth will be up; if last year was above average, this year growth will be down.

As well, when times are tough, official forecasts tend to err on the optimistic side. (This is no bad thing when, to some extent, their forecasts tend to be self-fulfilling; the last thing we need is the government predicting death and destruction.)

But I’m under no such constraint. And I can’t see the economy getting out of second gear in the financial year ahead. The obvious reason for expecting further weak growth is the effect of all Trump’s antics. But this factor is easy to overestimate. Unlike some countries, we don’t do much trade with the US.

The media have tended to exaggerate the likely effect on us of all Trump’s off-again, on-again tariffs to make it a better story. The ultimate effect on us will come mainly via China, our biggest export destination, but the Chinese have their own ways of protecting themselves in the unending tussle with the Yanks for the title of top dog.

What’s likely to have a bigger effect on us is the uncertainty about how Trump’s craziness will play out. Uncertainty has real effects when it prompts businesses and even households to delay investment decisions until the prospects are clearer.

So there will be some adverse effect on our economic growth. Even without Trump, however, it’s too easy to sound wise by making a big thing of what’s happening in the rest of the world. Never forget that roughly three-quarters of all the goods and services we produce are bought by Australians, while roughly three-quarters of all the goods and services we buy are made by Australians.

On the positive side for economic growth, it can’t be long before the Reserve Bank cuts interest rates back to their normal or “neutral” level. But that suggests a total cut of only 1 percentage point or so. It won’t set the world on fire.

Similarly, the parties’ many election promises will add to government spending and act as a stimulus to the economy and private spending. But again, don’t let the modern practice of exaggerating the significance of government policy measures by quoting their expected cost “over four years” mislead you.

From the perspective of the budget’s immediate effect on economic growth, it’s only the cost of the measure in the first year that matters. And, because we’re measuring annual growth, it’s only any increase on the first year’s spending that matters.

The fancy mathematics economists indulge in is overrated, but simple arithmetic isn’t.

Read more >>

Fixing the economy is like training for a marathon: not much fun

By MILLIE MUROI, Economics Writer

It used to completely baffle me how addicted runners seem to be to their sport. My dad, who has run nearly 200 marathons, used to drive my brother and I to park runs at the crack of dawn as kids. Not my idea of fun.

But the more I think about it, the more I realise running is like competition reform: often a pain in the glutes, but a habit that’s rewarding (and actually a bit enjoyable) if you stick the course. In August, I’ll be attempting – if all goes to plan – my first marathon.

Running is what Dr Andrew Leigh, former economics professor and now assistant minister for competition and treasury, would class as “type one” fun. Following him on Strava – Facebook for fitness buffs – is proof of this: for Leigh, running is intrinsically fun.

For me, it has long been “type two” fun: unpleasant in the moment but satisfying after the fact – much like competition reform for economists, as Leigh points out in a speech he gave to the Economics Society of Australia in Perth this week. “It’s no policy paradise or island stroll, but it’s no data desert either,” he says of reform: it’s hard work at the time but worth the effort.

The Hilmer reforms in the 1990s are a good example. While the process took nearly a decade and there was plenty of disagreement, the pay-off was massive. Leigh says it permanently boosted average annual household incomes by roughly $5000.

Just as you might be pushed to perform better in a race against other people, greater dynamism and competition is generally a good thing for a more productive economy.

One lesson from those reforms was that money talks. Much like a promise agreed to (but not yet fulfilled) by my parents to pay me $5 for every second I take off my “per kilometre” pace, incentives matter. Turns out I can run much faster when I’m financially compensated for it.

In the late 1990s, the Australian government made national competition policy payments to states and territories based on their populations – but only if they made satisfactory progress on their reform commitments. This helped push through changes such as removing restrictions on retail trading hours, setting up the national electricity market and abolishing controls on the price of milk.

Today, Leigh says the Australian economy faces different challenges. And while reform may not be anyone’s idea of “type-one” fun, it can make us better at what we do.

That is, the easier it is to switch jobs, and the less dominated an industry is by a fistful of firms, the better it is for our economy. Why? Because it keeps businesses on their toes, pushes them to work harder and smarter, and allows workers to move more easily to jobs that are a better fit.

And as Leigh points out, we’ve become better at crunching the numbers. “Using bigger datasets, better econometric techniques and updated theories, economists have provided new insights on trends in market concentration and the relationship between competition and productivity,” he says.

This is important because it’s difficult to make improvements (in running and in economics) without data.

We know from economists Dan Andrews (not that one) and David Hansell’s look at firm-level data, for example, that job switching rates have dropped in recent years. And we see from Jonathan Hambur’s look at tax data that Australian industries dominated by a handful of big players have tended to increase their prices the most.

The hard work, of course, is making the changes we need. Tracking my running form during runs has been weirdly fun. Actually fixing my technique? A bit tedious.

Last year, the government ramped up the country’s merger reforms so that businesses above a certain size as measured by their turnover – or buying a business over a certain size – would have to (from January 2026) notify the Australian Competition and Consumer Commission whenever they wanted to merge. That is, notification would no longer be voluntary.

This was partly thanks to a database built by the Treasury’s Competition Taskforce, the Reserve Bank and the Australian National University, which found about 1500 mergers were happening every year, many involving big firms. Yet only about one in five were voluntarily notifying the competition watchdog.

Enforcement and the paperwork required for all the additional notifications might be a bit cumbersome. But the hope is that keeping track of big (or serial) mergers will help keep concentration in check.

And the fun doesn’t stop there. Leigh says there’s currently work underway on a tool to identify parts of the economy where there are only a few big businesses. Using geographic data from the Australian Bureau of Statistics, the tool will help to zero in on concentration hot spots: regions or segments of the economy where further merger activity could pose the greatest risk to competition.

Then, there’s “non-compete clauses” which handcuff more than one in five Aussies according to economic research institute e61. These sneaky clauses are written into employment contracts to restrict an employee from joining a competitor, or starting their own business to compete with their ex-employer, usually for a set time or within a geographic area.

Non-competes can protect intellectual property, but their use in sectors like childcare, Leigh says, shows they’re probably also being used unreasonably to stop workers moving to more desirable jobs, too. This, he says, is “type three” fun: that is, no fun at all.

The Productivity Commission reckons reforming non-compete clauses could permanently boost Australia’s productivity and output by allowing workers to move more easily to higher value jobs and making it easier for new businesses to challenge old ones.

It’s one of 19 potential reforms under a new National Competition Policy signed last year, which the commission reckons will increase the income of every Australian household each year by up to $5000.

It might not be easy to execute, but the commission says these reforms would ease cost of living pressures, pushing down prices by between 0.7 to 1.5 per cent over the long term.

Leigh says work is already underway on the 10-year reform agenda, starting with changes like streamlining commercial planning and zoning and making it easier for care workers to move around. In a modest nod to the Hilmer reforms, there’s also a $900 million National Productivity Fund which will pay state governments to implement reforms.

Like training for a marathon, competition reform requires focus, commitment and some sacrifice. The “runner’s high” is still an elusive phenomenon for this amateur runner. But if I can make it through that finish line in August, I’m optimistic the nation can hit the ground running with more of the reform we need for a better-performing economy in the long run.

Read more >>

How many more cyclones before our leaders finally do something?

Forgive me for being hard-headed while everyone’s feeling concerned and sympathetic towards those poor flooded Queenslanders and people on NSW’s northern rivers, but now’s the time to resolve to do something about it.

As the rain eases, the rivers go down, the prime minister flies back to Canberra and the TV news tires of showing us one more rooftop in a sea of rushing water, the temptation is to leave the locals to their days and even months of getting things back to normal, while we go back to feeling sorry for ourselves over the cost of living and waiting impatiently until the federal election is out of the way, and we stop hearing the politicians’ endless bickering.

But speaking of politics, let’s start with Anthony Albanese. He’s been forced to abandon his plan for an April 12 election because calling an election in the middle of a cyclone would have been a very bad look.

“I have no intention of doing anything that distracts from what we need to do,” he told the ABC. “This is not a time for looking at politics. My sole focus is not calling an election, my sole focus is on the needs of Australians – that is my sole focus.”

Ah, what a nice bloke Albo is. Convinced? I’m not. You don’t get to be as successful a politician as Albanese unless your sole focus is, always and everywhere, politics. It’s because his sole focus is politics that he knows now’s not the time to look political. “Election? Election? If I don’t make out I don’t care about the election at a time like this – I could lose it.”

One thing I’ve learnt from watching prime ministers is that, though they all make mistakes – buying a holiday beach house during a cost-of-living crisis, for instance – they never make the same mistake that helped bring down their predecessor.

Every pollie knows Scott “I don’t hold a hose” Morrison’s greatest mistake was to persist with his Hawaii holiday during the Black Summer bushfires of 2019-20. The ABC has helpfully dug up footage of people in the affected area refusing to shake Morrison’s hand after he turned up late.

Now do you get why Albanese’s been doing so much glad-handing up in the cyclone area?

The election campaign that’s already begun is between two uninspiring men, neither of whom seem to have anything much they want to get on and do. You’re going to fix bulk-billing, are you? Wow. Anything else?

But, perhaps in an unguarded moment, Albanese did say something impressive. He seemed to elevate climate change as a major election issue, saying all leaders must take decisive action to respond to global warming because it is making natural disasters such Cyclone Alfred worse and more expensive to recover from.

Actually, this is the perfect opportunity to make this an election worth caring about. You’ve got a Labor Party that cares about climate change but is hastening slowly, versus a Liberal Party that only pretends to care and whose latest excuse for doing nothing is switching to nuclear power. This would take only a decade or two to organise so, meanwhile, we can give up on renewable energy and abandon Labor’s commitment to cut emissions by (an inadequate) 43 per cent by 2030.

Both sides are likely to lose more votes to the two groups that do care about climate change – the Greens and the teal independents. Labor is delaying announcing its reduction target for 2035 until after the election. If Albanese had the courage, he’d promise a much more ambitious target and make it a central issue in the election.

The point is, Alfred is hardly the last cyclone we’ll see. Extreme weather events – including heatwaves, droughts and floods - have become more frequent and more intense. How many more of them will it take to convince us we need to do more to reduce our own emissions, as well as taking responsibility for the emissions from the coal and gas we export to other countries?

What’s different about Alfred is it hit land much further down the coast than usual. Reckon that’s the last time this will happen? Modelling by scientists at UNSW’s Climate Change Research Centre suggests that weakening currents may lead to wetter summers in northern Australia.

Other researchers from the centre tell us “our climate has changed dramatically over the past 20 years. More rapid melting of the ice sheets will accelerate further disruption of the climate system.”

A big part of our problem is the longstanding human practice of building towns near a good source of water, such as a river. Rebecca McNaught, of Sydney University, tells us Lismore is one of the most flood-prone urban centres in Australia.

Dr Margaret Cook, of Griffith University’s Australian Rivers Institute, reminds us that, until recently, 97 per cent of our disaster funding was spent on recovery, compared with 3 per cent invested in mitigating risk and building resilience.

That’s all wrong and must be reversed. Armies of volunteers – plus defence forces – emerge after disasters to help mop up. But Cook argues for an advance party that arrives before a disaster to help prepare by moving possessions, cleaning gutters and drains and pruning trees.

She advocates advanced evacuation, permanently relocating flood-prone residents, raising homes and rezoning to prevent further development in flood-prone areas.

“We must improve stormwater management, adopt new building designs and materials, and educate the public about coping with floods,” she says.

As we saw at the weekend, the defence forces have become a key part of the response to natural disasters. Great. Except that, according to a review in 2023, the Australian Defence Force is not structured or equipped to act as a domestic disaster recovery agency in any sustainable way.

It could be so structured, of course, though it might take a bob or two. And that’s before you get to the problem of houses that are uninsurable and insurance policies that are merely unaffordable.

The more you think about climate change, the more you realise it’s going to cost taxpayers a bundle.

Read more >>

Maybe the inflation surge didn't happen the way we've been told

According to Reserve Bank deputy governor Andrew Hauser last week, we’ve entered a world characterised not just by volatility, complexity and uncertainty, but also by “ambiguity” – a world where “you don’t know the model”, meaning that “judgment and instinct are as important as formal analysis”.

At last, someone is talking sense.

Academic economists may be locked into their maths and econometric models, but practising economists know it ain’t that simple. Economics is as much an art as a science.

Economics would be much easier if only human consumers and businesspeople behaved like rational automatons, reacting automatically and mechanically to known incentives, as you implicitly assume they do when you use a set of equations to guide you through the inevitable uncertainty caused by the lamentable truth than the humans who constitute the economy are . . . human.

Keynes reminded his fellow academics of the need to take account of people’s “animal spirits”. Anyone familiar with markets knows they tend to alternate between periods of optimism and pessimism. I prefer to say that maths without psychology will usually get it wrong.

Contrary to the assumption of the simple model that dominates the thinking of almost all economists, humans are not rugged individualists who decide for themselves the best thing to do, then do it without regard to what anyone else is doing.

In reality, consumers and businesspeople are heavily influenced by what other people are doing. We’re susceptible to herd behaviour, fads and fashions. And we live in a permanent state of uncertainty.

In their landmark book, Radical Uncertainty: Decision-making Beyond the Numbers, John Kay and Mervyn King say it’s not true, as economists assume, that businesses are “profit maximising”. That’s not because they wouldn’t like maximum profits, but because they don’t know the magic price to charge that would do the trick.

As the punters often forget, when a firm raises its price, it’s taking a risk. It’s taking a bet that what it gains in higher revenue won’t be cancelled out by the sales it loses from customers unwilling to pay the higher price.

In the real world, firms feel their way with price increases, hoping to avoid going over the top and ending up worse off. But get this: they feel a lot more comfortable putting up their prices when everyone else is putting up theirs. You know, like our firms were doing a year or two ago.

Hauser says that, at present, “we don’t know the model” but, in fact, the Reserve and everyone else are using the same orthodox, mainstream model to explain why, after staying low for almost 30 years, the annual rate of inflation took off in late 2021 and reached a peak of 7.8 per cent by the end of 2022.

As I’ve written incessantly, this first inflation surge in three decades was caused by the COVID-19 pandemic (with a little help from Russia’s attack on Ukraine). The pandemic caused worldwide disruptions to supply, in turn causing the prices of many goods to leap. The second factor was the massive monetary and budgetary stimulus the authorities let loose to keep the economy alive during the lockdowns.

This conventional wisdom is easily accepted because it blames most of the problem on the government. Inflation surged because the authorities cut interest rates and increased government spending by far more than proved necessary. All of us borrowed more and spent more, causing demand to run ahead of supply and prices to rise.

But I’ve long suspected this isn’t the whole story, or even the main story. So, since even the Reserve Bank isn’t sure we’ve got the right model to explain what’s happening in the economy, let me show you my model, which puts most emphasis on psychological factors.

When people in many countries were confined to their homes, they could still use the internet to buy goods, but they couldn’t spend on personally delivered services. So spending on goods surged to levels far greater than businesses were used to supplying. And, since most manufactured goods are imported, we got shortages of ships and shipping containers to go with shortages of cars, silicon chips, building materials and much else.

When Russia’s invasion of Ukraine caused oil and gas prices to soar as well, the media went for weeks with stories of how much prices would be rising. Reporters would go to industry lobby groups, whose shills would regretfully affirm that, yes, prices would be rising hugely. The ABC gave much publicity to some wiseguy claiming the price of a cup of coffee would jump to $8. Great story; pity it was BS.

I could see what was happening at the time. Businesses were using the media to soften up their customers for big price rises. They were setting up a self-fulfilling prophecy.

Only in recent times have academic economists begun to understand the important role played in the economy by “signalling” – a role not captured by their equations. Not only were firms signalling to customers that, due to causes entirely beyond their control, big price rises were unavoidable, they were signalling to all their mates that now would be a great time to whack up their own prices.

But my alternative explanation doesn’t start there. Remember that, for seven whole years before this latest price surge, the inflation rate was stuck below the bottom of the 2 to 3 per cent target range, despite the Reserve’s efforts to get it up.

Why was inflation unacceptably low? My theory is it was another self-fulfilling prophecy. Businesses weren’t game to raise their prices because no other businesses were raising theirs. Everyone was waiting for some inflationary event to give them some cover, but nothing turned up.

Until the pandemic’s supply disruptions and the Russia-induced jump in oil and gas prices turned up. As soon as it did, everyone breathed a sigh of relief and began wondering how big an increase they could get away with.

The irony is that the pandemic-induced supply disruptions – and even, to an extent, the oil and gas price rises – proved temporary and were reversed. Leaving all the unrelated price rises to stand.

Read more >>

Our jobs market is booming, but the RBA needn't be so worried

Despite the economy only just popping its head up after 21 months of “per-person recession”, our jobs market has been going gangbusters. How can it possibly be so strong? It’s this strength that has made the Reserve Bank so reluctant to cut interest rates.

This week we learnt from the “national accounts” that the economy – real gross domestic product – grew by a princely 0.6 per cent during the three months to the end of December. This caused its annual rate of growth to jump from a very weak 0.8 per cent to a not-quite-so-weak 1.3 per cent.

Trouble is, until now, the economy’s growth hasn’t been enough to keep up with the growth in our population. So real GDP per person fell by 1.7 per cent over the seven quarters to last September, but – thank heavens! – rose by 0.1 per cent during the December quarter.

If we’re lucky, GDP per person will now keep going forward rather than backward in 2025.

But the weakness in economic growth – caused by the Reserve keeping its foot on the interest-rate brakes since May 2022, as it fought to get inflation down – simply doesn’t fit with our roaring jobs market.

Professor Jeff Borland, of the University of Melbourne, is probably the nation’s top expert on the labour market. So I asked him to explain this paradox.

To show just how strong the jobs market has been, Borland notes that, although the total number of people in Australia with jobs grew at a rate averaging about 2 per cent a year over the previous two decades, it grew by 3.5 per cent over the year to this January. It grew almost as fast over the past two years.

Of course, the rate at which the number of jobs increases is normally closely related to the rate at which the economy’s growing. Borland calculates that, had the usual relationship between the two held, you’d expect employment to have grown by 3.4 per cent since the end of 2021. Get this: the actual growth is 9.5 per cent. That’s gangbusters.

But why has employment been growing at such an extraordinary rate? Borland says it’s all to do with growth in the “non-market” part of the economy, which covers public administration and safety; healthcare and social assistance; and education and training.

Now, if you were Donald Trump or Elon Musk, you’d think this meant a massive increase in public servants sitting round drinking tea and not doing anything of any use to anyone.

If you had more sense, you’d know it’s mainly the growth in the “care economy” we keep hearing about. More people being employed in aged care, disability care and childcare. You’d know these women work their butts off helping our oldies, our kiddies and our disabled cousin.

The care economy’s growing because of the ageing of the population, because we need our women in the paid workforce not at home minding kids, and because we’ve decided the disabled should no longer be hidden away being looked after by some poor rello.

You’d remember the various royal commissions exposing the scandalously poor treatment of people in care, how neglected they were by the previous Liberal federal government, and how much the Albanese government has had to spend trying to catch up. (Note, “non-market” means many of these workers deliver a service you don’t pay for over the counter. But most of the extra workers would be working for private sector providers.)

Borland calculates that, had non-market sector employment grown at the same rate as the market sector, total employment would be almost 700,000 lower than it is.

But why hasn’t this massive growth in the workforce led to higher wage rates as workers were bid away from other employers? Borland says one reason is that there’s been a downward shift in the level of wage inflation for any given degree of tightness in the labour market. (Reserve Bank please note.)

He says workers in the non-market sector don’t push for pay rises the way workers in mining or the utilities or construction did in earlier times.

But for so much growth in employment to be possible, there has to be a supply of extra workers available. This extra supply means workers don’t need to be bid away from their present employer.

Guess what? Since the pandemic, we’ve had strong growth in the population due to high immigration. Borland calculates that population growth explains about half the employment growth from late 2021 to late 2022, all the employment growth from late 2022 to early last year, and since then, it’s been about three-quarters of the story.

What can’t be explained by population growth is explained by people already in Australia who didn’t have paid employment deciding that, since so many new jobs were available, they’d take one and make some money.

It’s no surprise that many of these extra workers are women. What’s surprising is there are now more blokes working in the care economy.

Further delving by Boland finds that a lot of the extra jobs have gone to people under 24, suggesting many education-leavers have been finding it easier to find work.

Cost-of-living pressures may have prompted people to take a job. And the rise of working from home seems to have enabled more people to take a paid job or work more hours.

And get this: older people have been more inclined to keep working or even return to the workforce from retirement. Since the early noughties, the proportion of people over 64 who are still working has risen from 6 per cent to 15 per cent (don’t look at me).

The Reserve Bank has made no secret of its reluctance to cut interest rates when the jobs market is so “tight”. It worries that, if the economy starts growing more strongly, we might soon run out of workers, which would set inflation off again.

But I think you could just as easily conclude from our recent experience that the economy has shown its ability to find all the extra workers it needs.

Read more >>

Our home-building industry is going nowhere fast

You may think that a newly built home or unit looks pretty swish. But what no one’s noticed until now is that our home building industry is clapped out. Gone to pot. It’s going nowhere fast. While most of our industries have improved greatly over the past 30 years, the housing industry hasn’t. If anything, it’s getting worse.

As I’ve mentioned before, now that the ever-worsening affordability of home ownership has reached a crisis point, our politicians – federal and state – have finally started taking affordability seriously.

It’s such a tough problem it will only be solved by fixing all the bits of the system that aren’t working as they should. So, for the first time in living memory, it occurred to someone – someone in Treasury, I suspect – that maybe we should take a quick look at the home building industry to make sure it’s ticking over OK.

The recent report by the Productivity Commission has revealed that the musclebound blokes in shorts and work boots – and their bosses – have yet to be introduced to the lovely Miss Productivity. They drive the latest monster SUV utes – all with names like the Bronco, the Wrangler, the Grunt, the BigOne and the BallScratch – but that’s where modernity ends.

According to the report, our home builders have clocked up “decades of poor performance”. It examined the whole building process, from site preparation and project management to the installation of fixtures and fittings.

Over the past 30 years, the productivity of the industry’s workers – the value they create per hour of work – has fallen by 12 per cent. This takes account of the increase in the size and quality of new homes over the decades. And this while all our other industries’ productivity improved by 49 per cent. The report calculated that, had all our industries performed as badly as housing, our average income would now be about 40 per cent lower than it is.

Of course, the industry’s productivity differs by housing type. Productivity in the building of actual houses has fallen by 25 per cent, whereas productivity in higher-density housing – building townhouses, units and apartments – has increased by 5 per cent.

The report admits the many reasons it’s difficult to make housing construction more efficient. For a start, you can’t pump out houses the way you produce cars on an assembly line. Each one has to be built at its own location; locations can be different, and there are many different sizes and styles of houses.

As well, house building is sequential; everything has to be done in a certain order. You can’t polish the floors or put down the tiles until the roof’s on, for instance. So, if there’s a delay in completing a particular stage, all the subsequent stages have to wait.

Then there are significant safety and quality issues to be considered. The plumbing must be of a standard that doesn’t disrupt the sewerage system; the electrical work must minimise the risk of electrocution; in these days of global warming, homes should be built with energy efficiency in mind; does its location mean the place needs to be cyclone-proof? And that’s before you get to houses built on a floodplain.

Next, unlike most industries, there’s been little pursuit of economies of scale. Housing construction is one of our least concentrated industries. The combined market share of the largest four firms is only about 12 per cent. Not exactly Woolies and Coles or Qantas and Virgin, eh?

The average firm in the home building industry has only two employees. Everyone’s a subcontractor. Even so – or perhaps because of this – the industry struggles to attract and retain skilled workers. Apprenticeship commencements and completions have stagnated. Training pathways can be restrictive and inflexible. And the higher density housing builders have to compete for skilled workers with big construction companies building expressways and suchlike.

What stands out, the report says, is the housing industry’s lack of innovation. Few of the industry’s bosses put much effort into searching out and trying new ways of doing things.

To be fair to the industry, however, it does have to do battle with a huge load of government regulation of its affairs. The local government development and construction approval process can be cumbersome, with inexcusable delays in issuing approvals.

Regulation can stretch the timeline for an apartment complex or new housing estate out to 10 years or more, the report says. Often, only a small part of this is time to actually do the building work.

The report identified four ways that government regulation reduces productivity. First is the sheer volume of regulation, with all three levels of government getting in on the act. The national construction code – which should have been a great means of reducing overlap and overload – has been allowed to grow to more than 2000 pages.

Second, approval processes can be unduly slow and poorly co-ordinated. Third, there can be inconsistencies between the levels of government, creating unnecessary confusion, duplication and delay.

And finally, excessive, unthinking regulation can discourage and even prevent innovation, deterring businesses from finding better ways to do things.

Now, I’ve long been sceptical of business lobbies demanding we get rid of “red tape”. Too often, what they’re really saying is, “I should be free to make my own decisions on how safe this needs to be and how it will affect the neighbours and the natural environment. I need to create jobs and make profits now, and we’ll worry about our grandkids later.”

But by the same token, government departments are monopolies and misbehave accordingly, making unreasonable demands and putting through approvals in their own sweet time.

So, if we want a lower-cost, faster-finishing building industry, we must wake up and put a huge amount of effort into rationalising our regulation of the industry while insisting the bureaucrats get approvals processed without unnecessary delay. Never again should we ignore the industry’s performance.

Read more >>

The real truth on productivity: the bosses aren't trying hard enough

At last, some sense on the causes of our poor productivity performance. For ages, we’ve been told it’s the government’s fault – maybe even the voters’ fault – for failing to make economic reforms. But last week the econocrats finally set the record straight: the problem is, our businesses have stopped doing the things that make us more productive.

For about a decade, we’ve had little improvement in the economy’s productivity – its ability to produce more goods and services from an unchanged quantity of inputs of labour and capital. That is, to be a bit more efficient this year than we were last year. Most of the other rich economies have the same problem, but ours seems worse than most.

It’s by increasing our productivity that we’ve become so much more prosperous than our great-grandparents. For instance, in 1901 it took 18 minutes of the average worker’s time to afford a loaf of bread, while today it’s just four minutes.

It’s remarkable the way the nation’s economists have stayed silent while vested interests such as the (Big) Business Council have sought to use this problem to press the government for favours that would make them more profitable without having to try any harder.

Until now, and except for former top econocrat Dr Michael Keating, no economist has pointed out how far the politicking over productivity has strayed from Economics 101. To hear the rent-seekers talk, you’d think that one of the main things governments are responsible for is producing and distributing productivity.

Nonsense. Because the private sector produces the great majority of the economy’s goods and services, it’s overwhelmingly the job of businesses – big and small – to gradually increase the productivity of their activities. So, when productivity’s lagging, the first place you look is in businesses’ backyard.

Next, every high school economics student knows that the main way businesses increase the productivity of their workers’ labour is by giving them more and better machines to work with. When they remember to mention it, economists call this “[physical] capital deepening”.

So, how have we been going with increasing business investment in buildings and plant and other equipment over the past decade or so? Short answer: not well.

Really? Really? Business investment has been weak for a decade but, when you preached your last sermon on the need for greater productivity, you didn’t see a need to mention this small fact?

There’s most of the problem right there. The productivity of labour hasn’t increased much because business hasn’t been spending much on labour-saving equipment. Mystery solved.

Almost to a person, economists are great believers in high rates of immigration. Immigration, they keep telling us, is great for economic growth. It’s true. There’s no easier way to grow an economy than to increase the number of people in it.

Businesses love high immigration because it gives them a bigger market to sell to. But whether that kind of economic growth leaves the rest of us better off is a different matter. As all the economists were taught at uni but keep forgetting to mention to the punters, the claim that immigration raises our material standard of living – which is the oft-stated benefit of economic growth – comes with a big proviso.

Which is? Productivity. If you get more people, but fail to provide them with the same capital equipment as the rest of us have – extra machines for the extra workers, extra houses for the extra families, and extra roads, public transport, schools and hospitals for the extra families – everyone’s standard of living goes down, not up.

In economists’ jargon, you have to ensure immigration doesn’t cause a decline in the “capital-to-labour ratio”. As well as the spending on “capital deepening” needed to raise our productivity, you also need spending on “capital widening” merely to stop our productivity worsening.

Guess what? We’ve had years of high immigration without the increased capital spending to go with it. Part of the problem is that the level of government with control over immigration, the feds, is not the level of government with responsibility for ensuring adequate additional investment in public infrastructure, the states.

As for the additional investment in machines to cover the needs of the bigger workforce, that’s down to the nation’s businesses. Guess what? They haven’t bothered. Our ratio of capital to labour is actually a little lower than it was a decade ago.

And surprise, surprise, we’ve had little improvement in productivity over the same period. Who knew? Why didn’t somebody tell me? Well, the business lobby was busy covering its backside by blaming it all on the government. And the economists have been so busy with their maths and models that they’ve got a bit rusty on the economic basics.

But here’s the news: last week, the econocrats got their act together and showered us with much-needed sensible analysis. The Reserve Bank’s Dr Michael Plumb gave the best-written and most informative speech to come out of the Reserve in yonks. He delivered it to a meeting of the Australian Business Economists, and boy did they need the tutorial. It’s required reading.

Plumb blamed the problem on the slow improvement in the amount of (physical) capital available to each worker and, to a lesser extent, little improvement in our firms’ ability to combine labour and capital more efficiently (known to economists as “multi-factor productivity”).

As well, the Productivity Commission issued a more technical paper by Lawson Ashburner and Vincent Wong examining multi-factor productivity, Learning but not always doing. Focusing on businesses, it found that “a creeping inefficiency and failure to push the boundaries of innovation has contributed to Australia’s poor productivity performance”.

So why have our businesses done so little to improve their productivity? Rod Sims, former boss of the Australian Competition and Consumer Commission, answers the last part of the puzzle.

He says that increasing productivity is just one way for a business to increase its profits. I think our guys have found it much easier to increase their profits by using legal loopholes such as casualisation and labour hire to screw down their wage costs.

Read more >>

Women still being kept in the home, but not by what you think

By MILLIE MUROI, Economics Writer

It’s a topic that, despite its horrific consequences, makes us avert our eyes, close the tab, and turn the page.

Usually, sadly, it’s only when there’s a death that readers – and the click-hungry media – pay attention. But before I lose you, I want to reassure you that it’s not all bad news. And I want you to hear from people who have defied the odds.

We already know domestic violence kills one woman every 11 days in Australia.

But for the first time, Dr Anne Summers, domestic and family violence professor at UTS, has put cold, hard numbers on the effects of domestic violence in Australia on women’s careers and how likely they are to finish their uni degrees.

When you think about it, the effect isn’t surprising. But Summers’ research exposes the gap between women who endure violence and those who don’t: it’s costing not just lives but our economy.

We’ve come a long way in getting women into work and pursuing university degrees. In 2024, three in five women were working or looking for work. Compare that to just one in three 60 years ago.

Similarly, only 8 per cent of young women had walked across the stage at a graduation in 1982. Today, that figure exceeds 50 per cent.

But those numbers should be higher, Summers says.

She looked at women born between 1989 and 1995 and found there was a nearly 15 percentage point difference between women who had experienced domestic violence and those who hadn’t when it came to the proportion who had finished a university degree by the time they hit 27.

For Laura McConnell, getting a degree was especially difficult after enduring family violence. “Even getting through required incredible resilience,” she says. “But I couldn’t afford to fail because I would have to go back to an abusive family.”

McConnell is now a co-founder of the social enterprise GoKindly, which supports women experiencing housing stress, but she left an earlier career at a big four consulting firm after she found they were unable to support her with her complex background.

“The fallout of coming from violence just follows you through your career,” she says.

While McConnell moved away from her abusive family, Summers says it’s also common for abusers, particularly partners, to prevent women from studying or cause them significant stress – a leading reason for dropping out.

“It’s no accident that employment and education, the pathway to better employment, are targeted by perpetrators,” Summers says. It’s a prime way to crush a woman’s ability to be financially self-sufficient and keep her under her partner’s thumb.

More than 280,000 women, or 5 per cent of the female population aged 18 to 64, have had a partner who has controlled or tried to control them from studying through everything from forced pregnancies to destroying school supplies, stalking them or making them feel guilty about their academic efforts.

This can jeopardise a woman’s career and financial future because a university degree increases the odds of landing a job by about two and a half times and boosts lifetime earnings by as much as 41 per cent. Abuse can also leave them saddled with student debt that they may never earn enough to repay, shrinking their borrowing power.

Endurance athlete Amanda Thompson, who runs her own financial planning business, Endurance Financial, has worked with women experiencing abuse but never thought she’d go through it herself.

Thompson endured emotional abuse for some time before an out-of-the-blue display of physical aggression ended with a triple-zero call.

But it was the year after the scars and bruises healed that was worse.

“It was a year from hell trying to run my own business and keep up with clients,” she says. “I was diagnosed with PTSD, which makes you exhausted all the time. Your body goes into spending all its energy on protecting you.”

Thompson said specialist support and counselling were key to her recovery but that there needed to be more funding for these services and more education on exit strategies.

“In my work, I’m actually getting more and more women coming to me confidentially, saying, financially, where do I need to be to leave,” she said.

Women who have endured abuse in the past five years are less likely to be working. About three-quarters were employed compared to more than four in five for women who hadn’t faced an abusive partner.

While younger women tend to pull back on the hours they work, for older women, most of the fall in employment is driven by them leaving the labour force altogether.

With 1.6 million women having experienced economic abuse by a partner since the age of 15, these proportions significantly dent the workforce.

A form of violence called “economic abuse” has an especially destructive effect. The difference in employment rates between women who have experienced it and those who haven’t is nearly 10 percentage points.

Economic abuse is when a person controls their partner through, for example, preventing a partner from going to work, making frequent disruptive phone calls to them at work, and saddling a partner with debt.

It can also include cunning tactics like hiding transport cards or keys, damaging clothing, or changing calendar appointments so that they get a reputation for being unpunctual.

When a woman stops working, it’s harder for her to plan an escape from her violent partner as she’s not likely to have enough individual income.

This leaves the affected partner tired and stressed, embarrassed from constantly being late for work, or unable to concentrate on their work.

Even if the abuse doesn’t push a woman out of work completely, one in three who experience violence while holding down a job take time off work. The likelihood increases if they have dependent children or if the violence is very frequent.

This can lead to job loss, a significant fall (averaging about 9 per cent) in the woman’s income and a lower superannuation balance in retirement.

These consequences can affect their decision to stay or leave a violent relationship. Fear of ending up in poverty is a major roadblock to women leaving violent relationships, and women who have experienced domestic violence report much higher rates of financial distress, with 44 per cent facing a household cash flow issue.

When a woman stops working, it’s harder for her to plan an escape from her violent partner as she’s not likely to have enough individual income. Working is also a safeguard against domestic violence because it offers women support networks at work.

The most recent comprehensive estimate of the costs of domestic violence, prepared by KPMG, puts the dollar figure at up to $26 billion a year, including the cost of pain, suffering, premature death, reduced productivity and increased demand on the justice system.

There’s plenty that could be done to fight against domestic violence, but ANU research fellow Kristin Sobeck, who worked on the report with Summers, says it starts with collecting more data.

“It’s really been a struggle to quantify the impact of domestic violence on women’s lives because there’s a dearth of data,” she says. “The first thing that shows you care about something is that you measure it.”

Read more >>

To make Medicare healthy again, the pollies must fix its symptoms

I don’t know if you noticed, but the federal election campaign began on Sunday. The date of the election has yet to be announced – it may be mid-April or mid-May – but hostilities have begun. And they began with an issue that’s been big in election campaigns for 50 years: Medicare.

On Sunday, Anthony Albanese revealed his election masterpiece, the knockout punch that would send Peter Dutton reeling, something Albo has had up his sleeve since December. You know how hard it’s getting to find a doctor who bulk-bills?

Well, Labor will fix that. Remember Bob Hawke’s famous election promise that “by 1990, no Australian child will be living in poverty”? Albo’s topped that. He’s promising that, by 2030, nine out of 10 GP visits will be bulk-billed. And all that for a mere $8.5 billion over four years in extra spending.

Politically, it was brilliant. Health is important to Australians, and they love being able to see a doctor without coughing up, so to speak. Poll after poll shows that when in comes to healthcare, Labor’s the party voters trust. And fixing bulk-billing ticks another box: cost of living.

It gets better. Dutton has form on bulk-billing. Do you remember when Tony Abbott won government in 2013? He’d promised not to cut various classes of government spending, but in his first budget he was making savings everywhere. He was going to introduce a “patient co-payment” of $7 a pop on visits to GPs.

There was so much public uproar and opposition in the Senate that most of the planned nasties were dropped. Guess who was minister for health at the time?

What a fabulous political tactician Albo is. A whole election campaign discussing the need to restore bulk-billing. Sorry, great move – not gonna fly. Within a few hours, Dutton had matched Labor’s offer “dollar for dollar”. The man who told us the Albanese government was “spending like a drunken sailor” said “see you, and raise you”. He’d be spending $9 billion over four years, thanks to $500 million for an already announced improvement in mental health.

Dutton had no time to consider the detail of Labor’s proposal, nor how he’d pay for it. By the way, how would he pay for it? Don’t worry, he’ll tell you later. How much later? Didn’t say.

Remember all those election campaigns when we agonised over debt and deficit? Where the media kept count of the cost of all the promises, and parties struggled to find ways to pay for it all?

Not this time. Neither man has an accountant’s streak. If Albanese keeps producing measures to help with the cost of living, and Dutton keeps matching him, this will be a costly campaign.

And now that the question of Medicare and bulk-billing has been neutralised, I doubt we’ll hear much about them again. So, since they matter far more to our lives than the incessant politicking, let’s take a closer look while we can.

Medicare – first introduced as Medibank by the Whitlam government in 1975 – is Australia’s first system of universal health care, in which everyone who needs help gets it, regardless of their ability to pay. Every rich country has a universal system, except the United States.

Under Medicare, the federal government pays about half the cost of the states’ public hospitals. In principle, bulk-billing ensures everyone can see a doctor when they need one. If in practice that’s too expensive, you can always wait in a public hospital’s emergency department.

Trouble is, universal health care is expensive and getting more so, which is a problem when politicians like appearing to cut taxes, and never increase them or introduce new ones. However, the government’s accountants know there’s more than one way to skin a budget.

When the $7 patient co-payment got rejected, the feds solved the problem by freezing the Medicare rebates to GPs rather than adjusting them for inflation. As Australia’s leading health economist Professor Stephen Duckett explains, this slowly forced GPs to abandon bulk-billing and introduce their own patient co-payments as their practice costs increased but their rebates didn’t.

It’s said that by the time Labor returned to office in 2022, bulk-billing was in freefall. Labor restored the indexation of Medicare rebates, then tripled the special incentive for GPs to bulk-bill pensioners and holders of healthcare cards, children and people in rural and remote areas.

This helped, but the increased payments weren’t enough to eliminate the gap between the rebate and the fees GPs were charging in metropolitan areas. The present average out-of-pocket payment is $46 a pop. (Bit more than $7, eh?)

At present, less than half of people are “always” bulk-billed when they see a GP. A further quarter of patients are “usually” bulk-billed.

Co-payments hit poor people harder than the rest of us, and I think they can be a false economy. The medical problems of people who don’t see the doctor because they can’t afford it can get a lot worse, which is both tough on them and tough on the taxpayer when they have to be rushed to hospital for operations and a long stay.

Albanese’s new promise is to further increase the incentives for GPs to bulk-bill, as well as to extend those incentive payments to cover all patients, not just pensioners, children and the others. His third change is to introduce an additional 12.5 per cent “practice payment” to those medical practices that bulk-bill all their patients. The changes would take effect from November 1.

Of course, Medicare has more problems than just out-of-pocket payments. The standard fee-for-service way of paying GPs makes sense for people with acute problems, but not the growing number with multiple chronic conditions (like a certain ageing journo).

Fortunately, Duckett thinks the promised changes could “start the necessary transition” away from fee-for-service in general practice.

Read more >>