MONDAY, 24 FEBRUARY 2020
SUBJECTS: Australia’s stagnant economy; the cost of climate change inaction.
ANNELISE NIELSEN: Now we're joined by Andrew Leigh, Shadow Assistant Minister for Treasury. Andrew, thank you for your time.
ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Pleasure, Annelise.
NIELSEN: Now we haven't been talking too much about an economy lately. It’s all been emissions targets, but it's obviously a huge issue especially leading up to the federal budget. You're saying that when you take a longer term look at the Australian economy, things aren't looking as good as we might be led to believe.
LEIGH: Annelise, I'm really worried not only about the fact that growth is down and wage growth is down and investment is down, but also that productivity actually declined in 2018-19. Australian firms are less innovative than they were. We're seeing less job mobility, less geographic mobility. All the signs are pointing towards an Australian economy that's more stultified and less dynamic than it should be.
NIELSEN: The Australian economy though has been consistently growing for decades. That's pretty extraordinary.
LEIGH: It has, though a lot of that’s population growth. On a per capita basis, household spending has barely moved in recent years. If we look at new firm growth, which is one of the critical indicators as to whether your economy has prospects for the future, we're seeing less new firm creation than we did a couple of decades ago. That failure to create new and nimble firms can be seen at the top of the stock market. Compare Australia’s biggest firms now to the biggest firms ten years ago. The list looks almost identical to what it did a decade ago. There's only one new entrant. In the US there’s a whole lot more turnover and their biggest firms are technology firms.
NIELSEN: One of the interesting things you’ve referenced in your recent speech as well has been retail in Australia. Retail has been taking a huge hit in the last few months, we’ve even seen a number of retailers collapse. Is that not just a failure of these businesses to adapt to the modern economy, to adapt to things like online retail quickly enough and shouldn't they fail if they're going to do that?
LEIGH: I think you make an astute point about needing to think of the quality of the retailers, but when you look at overall spending - even including online spending - and it’s at its worst since 1999. Yes, you've had Dimmey’s and Harris Scarfe and the likes hit the wall, but you've also had this general reluctance among consumers to spend because they're nervous about the prospects for the economy. When that happens we find challenges for wage growth because if you're not spending then that's not flowing into somebody else's pocket. So I think that's one of the reasons that so many Australian households are doing it tough right now.
NIELSEN: One of the other things I thought was interesting was you made a comment about how we watch the interest rates so obsessively in Australia, in particular in business news. Isn't losing its efficacy a real marker of economic stability, growth - whatever it is - because we've seen it's just kind of reaching its limit now. There's only so many more cuts they can make. The impact we're going to have from any growth is going to take years to come into effect, not months.
LEIGH: In terms of smoothing out the business cycle, I put this question to the Reserve Bank governor when we had our recent hearings. He acknowledged that monetary policy has less of an impact as you go close to the zero bound, but not a negative impact. So rate cuts would still stimulate the economy. The big problem is that the Reserve Bank's having to act because the federal government's not acting. They had this political target of a surplus, but they're not committed to the long term investments in productivity. That means infrastructure in the right places, rather than pork barrel infrastructure. It means tackling the problem that our school students are performing worse now than they were in the year 2000. It means addressing climate change, which we know is a long term risk to productivity if you don't do something now.
NIELSEN: So after the election we saw a lot of things rebound – growth, investment - because there was obviously a lot of concern in the business community, especially about a lot of these policies, Labor policies like climate change action, how much it was going to cost. So when we're talking about growing the economy, how can that marry up with the Labor party saying we're going to hit this 2050 zero emissions target and regardless of the cost?
LEIGH: Zero net emissions by 2050 is the target of the Business Council of Australia and plenty of firms such as Woodside, AGL, BHP. it's also the target of 73 countries around the world and every Australian state government-
NIELSEN: But that's the target of the BCA in telling companies what their targets should be and then they cost it within their own budgets. None of those CEOs are going to go back to their company and say ‘oh we're going to do this regardless of the cost because it's super important and let’s just see how it goes at the next budget’. Is that not the same standard that should be put onto government?
LEIGH: Well, they recognise that the benefits of acting can be considerable. So if you're a firm, then using electricity efficiently is useful. If you're producing from renewables, it gives you long term certainty. We know that countries that act on climate change are able to do so on a smooth path, Annelise. So that long term target does allow everyone to adapt and make the adjustments in a way that isn't a wrenching shift. Increasingly people will be replacing petrol driven cars with hybrids and electric cars, increasingly we’re going to be moving the grid from its 20 per cent renewables up to a greater amount of renewables. This is just sensible economics and the cost of not acting according to Melbourne University is 20 times the cost of acting.
NIELSEN: This is the point that every Labor MP keeps bringing up with me about this Melbourne University study - 20 times more the cost of inacting than acting. So then can we take that that is the cost that Labor is considering will be the cost of acting? Do you have that is your definitive cost of taking action on climate change?
LEIGH: We’ll produce our costed policies ahead of the 2022 election. What we're doing now is making absolutely clear where we would like to get to, and the place we'd like to get to is the same place that the states, that 73 countries, that many businesses are aiming to reach-
NIELSEN: But on that Melbourne University study, aren’t you trying to have your cake and eat it too? If you say the cost of not acting is 20 times the cost of acting, but also that's actually not the cost of acting because we don't know what the cost of acting is.
LEIGH: Well, we'll lay out our precise policies for achieving that target over time. But we've seen the cost of failure to act on climate change in the recent bushfires. We've seen it in the huge increase in insurance premiums many people are experiencing as a result of extreme weather events. Climate change can hurt the Great Barrier Reef and the thousands of tourism jobs that go along with that as well. So it's a clear and present danger to Australia, which is probably got more to lose from dangerous climate change than any other advanced country.
NIELSEN: Andrew Leigh, thanks for your time.
LEIGH: Thanks, Annelise.
Authorised by Paul Erickson, ALP, Canberra.