Why this election campaign is looking like 1987 deja vu all over again

They’re off! The starter’s gun for the election race has been fired, putting behind us the normal commentary on winners and losers from the Albanese government’s budget and the Dutton-led opposition’s budget reply. Usually, election campaigns are replete with announcements of new voter-friendly spending and tax-cutting policies. Not this time.

How do we know?

A little-noticed line item in every budget is “decisions taken but not yet announced.” This is lumped in with commercial-in-confidence items that cannot be disclosed publicly. Together, they amounted in Tuesday’s budget to around $10 billion over four years. That’s a puny war chest of new policies to be unveiled during the election campaign.

Spending restraint during the election campaign makes good sense. The turnaround in the government’s fortunes in the polls has coincided with the Reserve Bank Board’s decision at its February meeting to cut the cash rate for the first time in more than a year.

It was a small reduction of 0.25 percentage points but a reduction, nevertheless.  

Its value was to signify to households that the worst of the cost-of-living pressure might be over, the inflation rate having fallen from 7.8 per cent in the last three months of 2022 to just 2.4 per cent in the corresponding period in 2024.

A big-spending, tax-cutting election campaign would put that progress at risk, placing pressure on the Reserve Bank to pause any further reductions in the cash rate. 

That’s why in his budget speech Treasurer Jim Chalmers described the tax cuts as “modest” and part of a “responsible” cost-of-living package. The budget’s official forecasts will provide further reassurance to the Reserve Bank Board, the inflation rate remaining within the Reserve Bank’s target range of 2-3 per cent over the three-year forecast period.

The next Reserve Bank Board meeting will be on Monday and Tuesday, with a media conference to be held on Tuesday. The following meeting will be on 19-20 May, after the election.

All the economic data points to a further rate cut on Tuesday. The trimmed mean inflation rate, which takes out the 15 per cent fastest-growing and the 15 per cent slowest-growing prices, and which the Reserve Bank uses in deciding the cash rate, fell to just 2.7 per cent last month and has been within the Reserve Bank’s 2-3 per cent target range for the last three months.  

There’s no wages breakout and the labour market is not “running hot” as the Reserve bank feared last year. Instead, more than 50,000 jobs were lost in February. So no wage-price spiral is evident or in prospect. Moreover, the Reserve Bank acknowledges that the current level of the cash rate is “restrictive”.  

While all this recent data points to a further cut in the cash rate on Tuesday, markets are ascribing a very low chance of this happening. But a cut in May is deemed highly likely. That would occur just after the election.

Either way, the Reserve Bank Board is likely to announce or foreshadow another rate cut. 

Labor politicians who were politically conscious back in 1987 will note an eerie resemblance of current circumstances to those back then. Australia had suffered a catastrophic collapse in prices for its agricultural exports because of a trade war between the United States and the European Union. The Hawke government made big spending cuts in a 1987 May Statement. Bob Hawke called an election for early-July under the banner of “Let’s stick together, let’s see it through.”  

The election campaign song went on: “We’re on our way; we’re on the right track” and “No one ever got anywhere changing horses in mid-stream”.

While the political historians attribute the 1987 Labor victory to the Joh-for-PM campaign, it was more because the Liberals stuffed up their expensive tax policy and John Howard promised to “take a scalpel to Medicare.”

Sound familiar? Albanese is campaigning on strengthening Medicare while highlighting Dutton’s negative position on Medicare when he was health minister.

And on tax, in 2024 the Coalition voted against Albanese’s revamped Stage 3 tax cuts that gave bigger tax cuts to lower- and middle-income earners. It did so again in relation to Tuesday’s budget tax cuts.

The message Albanese and his team will seek to convey during the campaign is: the worst of the cost-of-living squeeze is over and now is not the time to risk it all – along with Medicare – by voting for Peter Dutton. It wasn’t on a whim that Albanese produced a Medicare card at his media conference announcing the election.

ABC Radio Sydney: The Nightlife Political Panel Election 2025

Nightlife, in the run-up to The 2025 federal election, will host a panel of informed people from relevant sections of the political spectrum – independents, the governing party and the opposition able to take a broader perspective, an overview.  

Cathy McGowan broke the Liberal/National Coalition's hold on the seat of Indi, becoming the first independent member for the north-east Victorian electorate and the first female independent to sit on the parliamentary crossbench.  

Dr Craig Emerson, an economist and former Labor MP, represented the federal seat of Rankin from 1998 until 2013. He served as Minister for "Trade and Competitiveness", Minister for "Tertiary Education, Skills, Science and Research" and Minister for "Competition Policy, Small Business and Consumer Affairs"  in the Rudd and Gillard Governments.  

Trent Zimmerman, former liberal MP for the federal seat of North Sydney. A former vice president and former president of the NSW Division of the Liberal Party of Australia and was previously Deputy Chief Executive of Australia's Tourism and Transport Forum. 

RBA should cut rates and not be fooled by trimmed mean inflation

As Reserve Bank Board members return from their holiday break, they will be confronting a momentous decision – whether to reduce the cash rate for the first time in more than four years at their February meeting.

Despite the private sector recording zero growth in the September quarter last year, the Board decided against reducing the cash rate at its December meeting. While the tone of the Board’s media statement and minutes was more confident that a cash-rate reduction might be imminent, the Reserve Bank’s separate November statement on monetary policy forecasts the unemployment rate to increase gradually “before stabilising around full employment” of 4½ per cent around the end of 2025. 

Despite repeated acknowledgements by Reserve Bank officials in the past year that the Non-Accelerating Inflation Rate of Unemployment – the NAIRU – is now less than the Bank’s earlier estimate of 4½ per cent, the November statement on monetary policy expressly puts it at 4½ per cent. 

This is against the backdrop of the most recent wage price index showing annual wages growth had fallen to 3.5 per cent in the September quarter from 4.1 per cent in the June quarter, as wages growth slowed on the back of a cooling economy. 

Indeed, the minutes of the Reserve Bank Board’s December meeting reported that wages growth had slowed faster than expected, adding to confidence that inflation was on track to return to its 2-3 per cent target range. 

Turning to prices, when measuring inflationary pressures the Reserve Bank doesn’t focus on the headline inflation rate but on the so-called trimmed mean rate. This measure removes the 15 per cent fastest-growing prices and the 15 per cent slowest-growing prices from the headline rate. 

The idea is to take out temporary price shocks such as floods and temporary government subsidies.  

The Financial Review’s John Kehoe argues that there are so many federal and state subsidies that not all of them will be trimmed out, artificially suppressing the trimmed mean rate. 

He goes on to argue that if the quarterly trimmed mean inflation rate due out on 29 January comes in as forecast at 0.7 per cent, or less, the Reserve Bank Board will be under massive political and community pressure to cut the cash rate at its 18 February meeting before a federal election.

Coincidentally, two macroeconomists with experience at the Reserve Bank have also stated that if the trimmed mean inflation rate for the December quarter comes in at 0.7 per cent or less, the Reserve Bank Board will be obliged to cut the cash rate at its 18 February meeting.

Those arguing for keeping the cash rate higher for longer claim that cutting it would be political, but it would be political not to cut when the case to do so was so strong.

Traders are pricing in a 59 per cent chance of a February cash-rate reduction and are certain it will happen by April, the Board’s second meeting this year.

But Reserve Bank staff might take the opportunity to argue that the trimmed mean inflation rate has been artificially suppressed by government subsidies, so the Board should ignore the December quarter number and keep the cash rate on hold. That would be consistent with pushing the unemployment rate up to their 4½ per cent estimated NAIRU. 

Yet the actual inflation rate announced on the Reserve Bank's website is now within the designated target range of 2-3 per cent, a rare occurrence in the past decade.

This is the inflation rate that Australian consumers and businesses feel, that shapes inflationary expectations, and which is carried directly into future prices by formal and informal indexation arrangements.

The Reserve Bank board looks also at the trimmed mean, which may also fall within the target range before long. If die-hard opponents of cutting the cash rate within the Reserve Bank’s economics department are now arguing that the trimmed mean measure itself needs modification, then, as Alice remarked, life is getting curioser and curioser.

Also curious is the date for the Reserve Bank board’s next meeting. By selecting 18 February, the Reserve Bank Board will be meeting just one day before the releases of the all-important wage-price index on 19 February and the labour force data on 20 February.

These are crucial indicators of the existence or otherwise of a wage-price spiral, which is the Board’s main concern and for which there has been no evidence to date.

It might seem easy, with this curious timing, for the Board to make further encouraging noises following its 18 February meeting, while keeping the cash rate on hold in accordance with the advice of those in the economics department who seek to lift the unemployment rate to 4½ per cent in conformity with their models.

But with the private-sector economy already having slowed to a halt, a Board decision at its February meeting to delay cutting the cash rate would put it into reverse gear.

If the Reserve Bank Board closely examined leading economic indicators, relied less on macroeconomic models built on economic behaviour in earlier times, and abandoned the goal of lifting unemployment to 4½ per cent, it would be in a strong position to make the right decisions on the cash rate at its February meeting.

Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies.

Productivity, competition and wages

Craig Emerson and Janine Dixon

Economists agree that the three Ps of population, participation and productivity are the drivers of economic growth. But a fourth P – pure profits that exceed the risk-adjusted cost of capital – constitute a large and growing part of western economies, leaving a smaller share for workers in the form of wages.

Donald Trump capitalised on the resulting worker resentment to win the US election. Could the same happen here?

Australian wages adjusted for inflation stopped growing during the pandemic and have fallen sharply since. While real wages have resumed growing in the last year, they still have a long way to go to reach pre-pandemic levels.

Australia’s measured productivity growth has been in decline for at least a decade. But it’s not all bad news.  The evolution of the modern economy was driven by technological change, first in agriculture, then manufacturing, and more recently in clerical services.

These changes are all drivers of productivity growth which has resulted in fewer resources being required in these activities to produce a given level of output. Workers have been diverted to service activities, particularly in the “non-market” sector which includes education, health care, aged care and policing.

As a larger proportion of economic activity is devoted to these services, for which, owing to measurement difficulties, measured productivity growth is assumed to be zero, overall productivity growth will naturally slow. But isn’t this the hallmark of a successful economy and society – more resources being devoted to educating children, to offering older people healthier and longer lives, and to living in safer communities?

Advances in care services, including post-operative care and palliative care in the home, improve lives despite making no impact on measured productivity growth. Under conventional thinking, productivity in education could be lifted by doubling class sizes per teacher and the number of hospital patients per doctor or nurse. But do we really want this to happen?

Declining measured productivity growth has been a feature of all advanced economies as workers move into labour-intensive service industries.

Beyond the effects on measured productivity growth of these desirable structural shifts into the service economy, when it comes to shared prosperity, we also need to look at the role of pure profits – otherwise known as rents.

Boston College economist Simcha Barkai argues that both the labour share and the capital share have fallen in in the US, while the share of pure profits has increased. He finds that pure profits accounted for almost $15,000 per employee in 2014, nearly half the median personal income. Is it any wonder working Americans were disgruntled and, ironically, voted for businessman Donald Trump, who was successful at tapping into this discontent?

While we haven’t seen de-linking of wages and productivity to the same extent here in Australia, the US experience is a cautionary tale. In Australia, worker resentment against big business has intensified, most notably against the major supermarkets.

Large businesses don’t stifle productivity growth. In fact, they are often best positioned to use economies of scale to gain efficiencies and adopt new technologies.

But market concentration enables oligopolistic businesses to retain pure profits for their shareholders and senior management, while legal firms and merchant banks thrive on facilitating further mergers and acquisitions.

Various Australian governments have had a go at improving competition, including the Whitlam government with its 1974 Trade Practices Act, the Keating government’s response to the Hilmer review, the Rudd government’s efforts to create a seamless national economy through 27 areas of federal-state regulatory reform, the introduction of the Competition and Consumer Act in 2010 and the Turnbull government’s response to the Harper review of competition policy.

Treasurer Jim Chalmers has announced a new effort at national competition policy, which has been agreed in principle by the states and territories. The Productivity Commission has released an ambitious program of inquiries to support this process. Its chair, Danielle Wood, will participate in today’s Melbourne Economic forum to outline the Commission’s early thinking, along with former ACCC chair, Professor Allan Fels, and Professor Peter Dixon of Victoria University’s Centre of Policy Studies.

Despite these many attempts at making the Australian economy more competitive, its remains dominated by oligopolies. Changes to mergers and acquisitions announced earlier this year, together with the outcome of the renewed effort at national competition policy, have the potential to shift the dial towards an open, competitive economy.

Craig Emerson is managing director of Emerson Economics, director of the APEC Study Centre at RMIT university, a visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies. Janine Dixon is the Director of the Centre of Policy Studies at Victoria University. Market concentration, productivity and competition policy will be discussed at Tuesday’s Melbourne Economic Forum supported by the Financial Review.

Reserve Bank is needlessly smashing jobs

A thorough reading of the Reserve Bank’s November statement on monetary policy should distress anyone concerned about needlessly throwing vulnerable Australians out of work. The Board is committed to increasing the unemployment rate to 4½ per cent from its present 4.1 per cent for no useful purpose. 

The statement on monetary policy confirms no interest-rate relief in the foreseeable future and, by explicitly ruling nothing in or out, it signals an outside chance of an increase in the cash rate as demanded by the Recessionistas.

By stating in the Board’s minutes that “members would need to observe more than one good quarterly inflation outcome to be confident that such a decline in inflation was sustainable”, Board members have signalled they are in no hurry to reduce the cash rate.

Astonishingly, the Reserve Bank defines full employment as an unemployment rate of 4½ per cent. Its statement says: “… the labour market is expected to continue to ease gradually to be around full employment by late 2025” and its forecast unemployment rate for late 2025 is 4½ per cent.

That’s 680,000 Australians looking for work but unable to find it. 

The Reserve Bank considers that at the present unemployment rate of 4.1 per cent “the economy still exceeds supply and that the labour market remains tight.”

In a speech on Thursday, the Governor doubled down, stating that the Reserve Bank judges “that conditions in the labour market remain tighter than what would be consistent with low and stable inflation” and that underlying inflation is still too high to be considering lowering the cash rate in the near term. 

Here we go again. Despite stating in its October 2023 minutes that “there were few signs of the risk of a price-wage spiral materialising” and the Australian Bureau of Statistics reporting that the most recent result for the wage price index was the lowest annual rise since December quarter 2022 the Reserve Bank remains concerned about the possibility a price-wage spiral emerging. It wants to use monetary policy now to prevent a price-wage spiral whenever it might occur, sometime, somehow in the future.

Full employment, as defined by the Reserve Bank, is the Non-accelerating Inflation Rate of Unemployment (NAIRU). Some years ago, the Reserve Bank estimated the NAIRU at around 5 per cent. Ahead of the appointment of the present Governor, the Reserve Bank validated estimates of the NAIRU at 4½ per cent. Its November Statement on Monetary Policy reaffirms the Reserve Bank’s view that the NAIRU is 4½ per cent.

In his new book, Let’s Tax Carbon, Professor Ross Garnaut presents compelling evidence that the NAIRU is no higher than 3.5 per cent. Garnaut cites Keynes in 1925, who observed that persisting with a wrong policy will certainly achieve the lower inflation desired, whatever the unnecessary human cost. 

Garnaut points out that inflation trending down but only slowly would require higher interest rates only if there were signs of accelerating increases in market-determined wages or increases in inflationary expectations – but neither of these has been evident. 

Lastly, the Reserve Bank warns that “weak productivity growth presents upside risks to inflation”. As the Productivity Commission points out, productivity growth accounts for almost all the improvement in Australians’ living standards since Federation. So stronger actual productivity growth is good for living standards. 

But the Productivity Commission also warns against relying on quarterly estimates of productivity growth, since they are revised constantly and never settle.

Further, the Productivity Commission has found that measured productivity in health services, into which an ever-increasing proportion of the workforce is moving, is very low, but that, when improvements in the quality of life are counted, Australia’s health productivity ranks third out of 28 comparable nations.

Is the Reserve Bank wanting health and aged care workers with low measured productivity to quit and move into high-productivity mining and agriculture so that it can feel comfortable about reducing the cash rate?

It is bizarre that the Reserve Bank monitors quarterly productivity statistics in setting the cash rate. The Reserve Bank has referred to measured productivity in the minutes of every board meeting held in 2024. They were never designed for that purpose and cannot perform it.

By arbitrarily and wrongly defining full employment as unemployment at 4½ per cent, the Reserve Bank Board will succeed in getting underlying inflation back into the 2-3 per cent band. But this will cause misery for vulnerable working Australians and small business owners that is entirely avoidable.

Craig Emerson managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies.

Australia a beacon for free-traders as Trump erects tariff walls

At no time in three-quarters of a century has the world’s support for free trade been so weak. It is in this bleak environment that the leaders of 21 APEC economies met over the weekend in Lima, Peru. When they meet in Seoul next year, with a new American President, their task will be even more daunting. Reasonable people will ask: why bother? 

The APEC forum – an Australian initiative – represents more than 60 per cent of the world’s GDP. In 1994, APEC members agreed to the so-called Bogor goals of free trade by 2010 for industrialised members and 2020 for developing members.

Tariff walls came down and economies stepped up their integration. But now tariffs are going up again in America and across the Atlantic in the European Union (EU). The Biden Administration kept in place the tariffs against China that President Trump erected in his first term in his self-declared trade war.

Now, President-elect Trump has promised further tariff increases of 60 per cent against China and 20 per cent against the rest of the world.

These actions have been welcomed in the US swing states, which include so-called rustbelt states, all which Trump won earlier this month.

The EU is giving expression to its innate protectionist instincts, imposing high tariffs on imports of Chinese electric vehicles. And it has refused to make a meaningful market-access offer to a patient and elsewhere highly successful Australian trade minister, Don Farrell, in long-running – but now suspended – negotiations for an EU-Australia trade agreement.

Farrell, a realist, could see no prospect of an improved offer from the EU, giving him the space to finalise the removal of all tariffs imposed on Australia by China in 2020 and concluding a deal with the United Arab Emirates.

At the weekend APEC meeting, leaders agreed a set of initiatives including two developed by the Australian APEC Study Centre at RMIT University, the Department of Foreign Affairs and Trade and the Australian government.

They were support for a movement of APEC economies to paperless trade and a bottom-up approach to progressing a Free Trade Area of the Asia Pacific (FTAAP).

Paperless trade involves digitising the archaic paper-based customs and quarantine clearance processes, greatly reducing the time goods sit wastefully on wharves and at airports. Some modelling estimates the benefits of moving to paperless trade at up to 15 times those from removing remaining tariffs within APEC economies.

Australia’s bottom-up approach to an FTAAP would involve reaching agreement on individual initiatives for the liberalisation of trade and investment, the mutual recognition of qualifications, women’s economic advancement and cooperation on decarbonisation.

Each would form a step towards an FTAAP and, if necessary, could involve a sub-group of APEC economies – so-called pathfinder initiatives – with others free to join if in the future they matched the ambition of the agreement.

Under this pragmatic approach, the ongoing journey towards an FTAAP would be more important than arriving at a destination.

At the leaders’ meeting, Australia’s prime minister, Anthony Albanese, reaffirmed Australia’s support for free trade, earning him praise from China, which seems keen to position itself as a champion of globalisation.

China’s foreign minister, Wang Yi, has twice reiterated to me personally that China supports the rules-based global trading system. Indeed, China is a member of the alternative, plurilateral dispute-resolution system created following the demise of the Appellate Body caused by US withdrawing its support.

President Xi Jinping’s statement at APEC in support of globalisation does not make China a free trader. But in its geostrategic competition with the US, China is advocating economic integration while the US President-elect is championing his protectionist America First tariffs.

A further surprise development at the APEC meeting sends a strong message about China’s intent. While Korea had already volunteered to host APEC in 2025 and Vietnam had done so in 2027, not host had come forward for 2026. China announced its willingness to fill that role.

Recognising that the Trump Administration will be avowedly protectionist, the right course for Australia and other free-trading members of APEC is to press on with liberalisation and economic integration within the APEC region and globally.

It never made economic sense for Australia to retaliate against a trading partner erecting trade barriers by erecting our own. Australia has long recognised this economic truth.

By championing economic liberalisation within APEC and beyond, the Australian government is advancing the national interest and showing the way to other nations. Meanwhile, the US is heading in a protectionist direction not seen in more than three-quarters of a century 

Craig Emerson is director of the Australian APEC Study Centre at RMIT University. He was Australia’s trade minister from 2010 to 2013.

What is the Reserve Bank waiting for? The data says cut

When the Reserve Bank Board meets this week, it will grapple with an official inflation rate within its target range and its preferred measure – the trimmed mean – just above it. While inflation hawks in the last few months have demanded the Bank increase its cash rate two or three more times, guaranteeing a recession, reasonable people can ask of a cut: if not now, how soon?

An in-vogue term in RBA parlance is that inflation is “sticky.” Really? In less than two years it has fallen from 7.8 per cent to 2.8 per cent. And the monthly annualised reads of the trimmed mean rate are: 4.1 per cent (June), 3.8 per cent (July), 3.4 per cent (August) and 3.2 per cent (September). Down, down, down and down.

Yet the Reserve Bank remains cautious about easing too soon. It’s instructive, therefore, to consider the usual suspects causing the Reserve Bank to hesitate on cutting the cash rate.

The first in the lineup of is the dreaded wage-price spiral. “Not guilty!” this swarthy character indignantly pleads. Although this villain was found guilty as charged several times back in the 1980s, it hasn’t even faced charges in the 2020s, the Reserve Bank Board noting in its minutes a year ago that there were few signs of the risk of a price-wage spiral materialising.

The Bank identified government as a possible villain, fearing Australian consumers would spend their tax cuts that came in on 1 July this year, along with the electricity rebate. But no, not at this stage anyway; they saved most of the extra money.

So which villain is worrying the Reserve Bank Board?

Its prime suspect is a resilient labour market. The unemployment rate has been hovering just above 4 per cent since early 2024, but it just won’t go up to where the Reserve Bank seems to want it. If only businesses would throw some of their employees out of work, seems to be the thinking at Martin Place. Instead, they’re hiring more of them!

This characterisation of the Bank’s thinking is probably unfair, but its concern that the unemployment rate hasn’t risen sufficiently to warrant a cash-rate reduction suggests it remains fixated on reaching its estimate of the non-accelerating inflation rate of unemployment – the NAIRU.

Just a couple of years ago, the Reserve Bank estimated that the NAIRU was 4½ per cent. Since then, the Bank has entertained the possibility that the NAIRU might be closer to 4¼ per cent. But at 4.1 per cent, the unemployment rate might be too low for the Reserve Bank’s liking.

The problem with any such thinking is that the NAIRU is observable only in the past, not in the present or the future. It changes as the economy changes. Not so long ago the Reserve Bank estimated it at above 5 per cent.

If the Reserve Bank insists on holding the cash rate at its present level until unemployment rises substantially it risks plunging the economy into recession. As Michael Pascoe has reflected, based on an analysis of my former Economic Honours Year colleague and former Reserve Bank Assistant Governor, Frank Campbell, the central banks of the world’s major economies began cutting rates well before inflation had reached their targets.

Australia’s annualised quarterly trimmed mean inflation rate is now 3.5 per cent, just 0.5 percentage points above the top of the Reserve Bank’s target range. The US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada and the Reserve Bank of New Zealand all began cutting when the gap between the core inflation rate and their target was greater than Australia’s gap.

Moreover, these central banks began easing when inflation was higher relative to their targets than it would be in Australia if the Reserve Bank reduced the cash rate at its November meeting.

What is the Reserve Bank waiting for?

Surely it can’t be worried about allegations that it is the lapdog of the Albanese government.

As Deputy Chair of the House of Representatives Economics Committee, in early 2007, an election year, I asked Reserve Bank Governor, Glenn Stevens, if he would be reluctant to increase the cash rate ahead of the coming election if the data indicated an increase was warranted. He replied that it would be “crazy” to hold off changing the cash rate if the data indicated it should be changed, adding if it had to be done “it will be done.”

 It was done and it has been done twice more this century.

If the flow of data continues to indicate the Reserve Bank should reduce the cash rate it should be done.

Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and adjunct professor at Victoria University’s College of Business.

How Australia can help to save rules-based trade

Never since its inception in 1948 has the global rules-based trading system been in so much trouble. If Donald Trump wins the presidency on 5 November, it will be dealt another heavy blow. We need to be thinking now of practical ways of keeping it alive for better days.

The US and the EU have imposed high tariffs on Chinese electric vehicles, purportedly on the basis that the Chinese government subsidises their production. It isn’t the first instance of a government providing financial support to a decarbonising industry and it won’t be the last.

The legality or otherwise of these tariffs cannot be tested under the dispute-settling procedures of the World Trade Organization, because the US refused to appoint new judges to the Appellate Body as the terms of the presiding judges expired.

The Trump tariffs imposed against China in his first presidential term are clearly illegal under WTO rules. They have been retained by the Biden Administration. Trump has promised he will, if re-elected, increase them even further.

As a flimsy justification for the Trump tariffs against China and other countries, the US has invoked the national security clause of the WTO agreement. Its origins are in the WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT) of 1948. At that time, shortly after the end of World War II, it was generally understood among members that the national security clause could be invoked only in the most exceptional of circumstances, such as the threat of being invaded by another country.

But now, the national security clause is ruse for the US to continue building its tariff walls.

The rules-based global trading system is under threat of extinction. The tariff-hiking practices of western countries, including the US, that contributed to the preconditions of World War II, are back in vogue.

If Trump is elected president again, he has promised further increases in tariffs against China and more generally. The Democrats, keen to win the industrial swing states, and with them, the presidency, will at least keep the original Trump tariffs against China.

In discussions I have held with China’s foreign minister, Wang Yi, he has emphasised to me China’s support for rules-based system.

Those who might consider this empty rhetoric should note China’s membership of a dispute-settling system, the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).

Comprising 27 WTO members, the MPIA is an alternative to the paralysed Appellate Body and has been established under the WTO as a plurilateral agreement.

So, there you go. Staring us in the face is the solution to the US withdrawal from the global rules-based trading system – a greatly expanded MPIA established under the auspices of the WTO by 27 members.

 What role could Australia play in saving and rebuilding the rules-based trading system?

The answer lies in an examination of the MPIA’s membership. In addition to China, the EU and Australia, members include Canada, Brazil, Chile, Colombia, Mexico, Peru Japan, Philippines, Singapore and New Zealand. That’s a pretty good geographic coverage of important or reputable trading countries.

As the Doha Round of multilateral trade negotiations was collapsing in 2012, Australia stepped up and led successful negotiations for a WTO trade facilitation agreement.

Similarly, in 2012, when an APEC agreement on tariff reductions on environmental goods was close to collapse, Australia salvaged an agreement that remains in place.

This year, Australia is leading APEC negotiations for a move to paperless trade through the digitisation of trade documentation.

The point is, Australia has a reputation and track record in trade forums as an honest broker capable of bringing parties together.

Expanding the membership of the MPIA would be a valuable step in reviving the global trading system.

When an international body is in trouble the first imperative is to keep it alive. Thereafter, the task is to revitalise it. Australia already is a member of informal groupings of friendly like-minded WTO members, just as we established the Cairns Group of Fair Trading Nations in 1986, which is still functioning to this day.

With its solid reputation in leadership, Australia can again step up and persuade more WTO members to join the WTO’s plurilateral, alternative dispute-settling body in a vitally important initiative to help the global trading system survive.

The US was founder and for a long time the most important support of the rules-based global trading system. We can only hope that in time the interest and values in the US will bring it back. By keeping the system alive, we would be making it possible for the US to return when the circumstances are right – and in the meantime, providing high value for those who remain in the system.

Craig Emerson is director of the APEC Study Centre at RMIT University and is a former Australian trade minister. He is a visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Study.

Who killed economic reform?

As the demands for economic reform grow ever shriller, identifying the reform killers becomes ever easier – they’re everywhere. Without an attitudinal change in Australia’s democratic institutions, reform is dead.

Academics prepare pretty papers detailing essential reforms and lazily blame parliamentarians for refusing to commit political suicide by implementing their prescriptions. Some argue for cutting the company tax rate funded by an increase in the GST rate on the basis that Australia must be internationally competitive in attracting overseas productivity-raising capital and that the GST is an efficient tax.

“So, what’s the problem?” they ask. The problem is that the people will revolt, condemning the proponent political party to electoral oblivion. The opposing political party, having worked this out in one nanosecond, would campaign against this academically inspired reform and promise to repeal it if elected.

Also out of the academic tax policy handbook is the reintroduction of death duties. A highly efficient tax, the academics point out, since the only way of avoiding it is to avoid death, which medical science has not yet conquered. Any conservative political party would campaign against it to great effect, claiming that the high proposed threshold would be lowered by the proponent progressive party in the twinkling of an eye, ensnaring every aspiring Australian in their tax-grabbing net.

A less radical tax reform could be to widen the GST base to include private school fees above a specified amount and use the proceeds to reduce the higher personal tax rates. But see how that goes with the Liberal Party and the Teals.

Back in 2005, in my policy book, Vital Signs, Vibrant Society, I proposed various reforms aimed at widening the income tax base to reduce the top marginal rate below 40 per cent. Freshly elected Member for Wentworth, Malcolm Turnbull, entered a constructive tax debate with his own proposals to achieve the same result. Two decades later, neither policy has been implemented.

In the last 40 years only three tax reform exercises have been successful: the Hawke-Keating reforms of 1985, the Howard-Costello GST of 1998 and their business tax reforms of 1999 based on a report prepared by John Ralph.

The 1985 reforms, which introduced the Fringe Benefits Tax, the Capital Gains Tax and several other base-broadening measures, enabled a lowering of the top personal rates and the company tax rate. They were opposed by the Howard-led Coalition. The GST was opposed by the Labor opposition. The Ralph reforms received bipartisan support.

During the 1984 election campaign, Hawke and Keating announced that if Labor were re-elected, they would convene a tax reform summit, instead of setting out pre-election a detailed reform program.

In today’s politics that would be inconceivable. Recall the 2019 election campaign, where television journalists ran alongside Labor leader, Bill Shorten, hysterically demanding he provide minute detail on every policy. And recall the virulent Coalition opposition to any change to negative gearing and capital gains taxation.

Recall, too, the Abbott-led Coalition’s collaboration with the Greens in 2009, voting down the Rudd government’s proposed market-based carbon price.

The Rudd government commissioned former treasury secretary Ken Henry to undertake a comprehensive review of the tax system. Reform of minerals taxation was a central feature of the Henry recommendations, but a well-funded campaign sank that too, along with the other Henry tax reform proposals.

What has changed since the landmark economic reforms of the Hawke-Keating era?

Most of the economic reforms of that era were not popular. Everyday Australians did not like the tariff reductions, opening up the economy to competition and the move away from centralised wage fixing. But Hawke, Keating and their key Cabinet ministers argued unrelentingly for them. The voting public gave them the benefit of the doubt.

But fundamentally, the media was different back then. As the likes of Keating spent an enormous amount of time advocating reform proposals with senior journalists, the serious mastheads and journalists were at least acquiescent to the reform program. Some, including the Financial Review, were energetic supporters.

In the modern era that is not the case. Most of today’s media, again apart from this masthead, demand that political leaders rule out every conceivable reform. They lend support to every opponent, to every defender of the unreformed status quo. And they are backed by campaigns lavishly funded by vested interests who like the system just the way it is. And then they complain that reform is dead.

As for the Abbott-inspired political formula of “Just Say No” that seems to have been adopted by Coalition leader Peter Dutton, it’s worth remembering that Abbott lasted just two years as prime minister with nothing to show beyond repealing sensible reforms.

Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies. He was an economic adviser to prime minister Bob Hawke.

Dutton’s nuclear folly is an economy wrecker

Opposition leader Peter Dutton’s CEDA speech on Monday provided no more detail on the Coalition’s nuclear policy. Dutton had already confirmed he would renationalise Australia’s baseload Australia’s power generation. His speech simply reaffirmed it. Sir Robert Menzies, a champion of free enterprise, would not recognise the modern Liberal Party.

Instead of setting out the cost of the seven nuclear power plants he has promised, Dutton stated yet again that the costings will be released before election day.

Nor did he provide any indication of the generating capacity of the seven proposed nuclear power stations. It would be constrained to the 12 gigawatts of capacity of the coal plants at the seven sites identified by the Coalition.

The seven nuclear plants, which include small modular reactors, therefore will fall massively short of replacing the coal-fired generators that will retire by then – let alone meet increasing demand as the economy and population grow.

There is currently 21.3 gigawatts of coal capacity in the national electricity market. Dutton's policy is effectively to replace half the current coal capacity, after 2035, in a market that the Australian energy market operator estimates will be 50 larger by that time.

Under Dutton’s optimistic scenario, the nationalised nuclear power plants wouldn’t be generating electricity before 2035. A more realistic start date is 2040.

But let’s stick with the 2035 fantasy.

The youngest coal-fired power station in eastern Australia was completed in 2007. The energy market operator’s latest Integrated System Plan expects up to 90 per cent of the national electricity market’s coal-fired power stations will be gone before 2035 and the entire fleet by 2040. Not because the government is shutting down these assets, but because their owners are choosing to replace them as they are ageing, increasingly unreliable, and increasingly unable to compete with lower cost renewables generation. 

Taxpayers in NSW and Victoria are already funding a total of three coal-fired power stations to stay open for a finite time while renewables, firmed by gas, pumped hydro and big batteries step, into the breach.

But Dutton isn’t keen on large-scale renewables. He attacked them again in his speech.

Dutton’s nuclear power plants, with nowhere near the generating capacity of the fleet of existing coal-fired generators, cannot come online before 90 per cent of the coal generators have closed, all in the context of rapidly growing electricity demand as the economy grows and households and businesses choose to electrify.

The only way of bridging the huge baseload coal-fired generating gap is to call on taxpayers to pay the owners of ageing coal-fired power stations to keep them open long after the end of their economic lives.

None of these costs are quantified or even recognised in Dutton’s speech.

This is a reckless gamble, and it will not solve the capacity gap that slowing down renewable and related investment will create.

By the mid-2030s these coal generators will become old, accident-prone clunkers that simply can’t be refurbished. When the Liddell Power Station in the Hunter Valley closed, its owner explained it had reached the end of its technical life.

The only remaining option then would be to build new, taxpayer-funded coal-fired generators.

The Coalition’s nuclear plan is a plan for taxpayer-funded continuous refurbishment of very old coal-fired power stations and the construction of one or several new ones.

A few months ago, Dutton appeared to reject Australia’s 2030 emissions reduction target made as a commitment to the Paris Agreement. His coal-to-nuclear policy ensures that, if elected, the Coalition would not only ditch it, but would not be able to meet the nominally bipartisan commitment to net zero emissions by 2050.

Far from becoming a renewable energy superpower, producing green iron for China and other countries of East Asia, Australia in 2030 would be heavily reliant on coal-fired power, ensuring we were locked out of the European market by its Carbon Border Adjustment Mechanism and in any other major country with carbon pricing mechanisms.

Households and industry would experience sharply rising electricity prices and supply interruptions during the 1930s coal-nuclear hiatus – an economy killer.

The sound approach, as identified by the Australian energy market operator, is for renewables supported by battery storage and pumped hydro, firmed up by gas, to replace the fleet of ageing coal-fired power stations. According to the energy market operator these are also the lowest-cost options to deliver a reliable energy grid.

Under the Coalition’s policy, Australian manufacturing industries would face a decade of uncertainty, foreign investment in manufacturing and allied industries would dry up and taxpayers would be called upon the finance the renationalisation of Australia’s electricity-generating sector.

 Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies.

Rate decisions have to follow the data, not the dogma

Following the recent release of the quarterly economic growth figures, we have witnessed the most bizarre economic commentary in decades. Australia’s barely positive growth rate has been greeted with howls of protest that this was achieved only through government spending. Those commentators were furious with governments for preventing a recession.

Recessionistas insist a recession is essential. Why? Because their historical analysis and economic models tell them so. They persist in accusing the Reserve Bank of not wanting to ruffle political feathers as the explanation of why their view isn’t being lauded at Martin Place. Some Recessionistas demand further cash-rate increases, presumably to bring on the recession they seek.

There was a time when governments were expected to use fiscal policy to prevent a recession. At the onset of the Global Financial Crisis the Rudd government and its treasurer, Wayne Swan, deployed a large fiscal stimulus that kept Australia – virtually unique among developed economies – out of the Great Recession of 2008-09.

The Morrison government committed massive fiscal spending to mitigate the looming Covid-19 recession, which caused the recession to be short. 

Nowadays, the Albanese government’s decisions to increase rent assistance and provide modest assistance with electricity prices and child care costs are being condemned as irresponsible.

In a recent column I defended the speeches of Deputy Reserve Bank Governor, Andrew Hauser, where he criticised others for being so certain about their monetary policy prescriptions. His advice was to follow the evidence.

Yet now, Reserve Bank Governor, Michele Bullock, appears to be ignoring the evidence of a rapidly slowing economy, declaring interest rates will remain high for longer and not ruling out further cash rate increases. 

If Governor Bullock is seeking to dampen inflationary expectations with these statements, then that’s fine, but if the Reserve Bank’s view remains that the economy is running too hot then we’re in big trouble. 

Before Governor Bullock made her statement, Australia’s treasurer, Jim Chalmers, made an unremarkable statement of his own – that high interest rates were smashing the economy. For this he was condemned by former Reserve Bank board member, Warwick McKibbin and former prime minister, John Howard.  

Chalmers has responsibility for economic policy in the Australian government. Is he to have no view about the effects of high interest rates? In commenting on the weak economic growth figures, he didn’t criticise the Governor. 

Hauser’s exhortation for everyone to follow the evidence and not dogma is prescient.

Yet the RBA’s forecast in early August was that household consumption for the June quarter would grow by more than 1 per cent, but it grew by less than half that rate. And the RBA forecast was for household disposable income to grow by 1.1 per cent, but it contracted by 0.3 per cent.  

These are big misses. Faced with them, how can the Reserve Bank sustain its argument that the economy is running too hot? 

Governor Bullock has claimed that the alternative to high interest rates is a recession but didn’t acknowledge that the consequence of persistently high interest rates is a recession.

One of Australia’s greatest strengths is that we live in a robust democracy. My disagreement with some of the statements and forecasts emanating from the Reserve Bank will be condemned by those economists who demand a recession.  

Recessionistas who accuse the Reserve Bank of kow-towing to the Albanese government appear to be setting the stage for fierce criticism in the coming election year if the Bank’s board decided, based on the data, to cut the cash rate. 

As deputy chair of the parliamentary economics committee in 2007, I asked Reserve Bank Governor, Glenn Stevens, if the data so indicated, would he increase interest rates in a pre-election period. He responded that it would be irresponsible not to do so. True to his word, the data so indicated, and he increased the cash rate. 

If the Reserve Bank refuses to reduce interest rates later this year, it will come under enormous pressure from Recessionistas and their political allies to keep them high next year through to election day, at great cost to everyday Australians and small business owners. 

Governor Bullock and Deputy Governor Hauser have assured us repeatedly that they will follow the evidence. Let’s hope they put their models aside, ignore the Recessionistas and follow the leading economic indicators. Those indicators are pointing to a slowing in inflation and an economy on the precipice of recession.

Craig Emerson is managing director of Emerson Economics, director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s College of Business.

Why you should hear out Andrew Hauser

“Sook” is a sledge used in federal parliament in the sitting fortnight just ended. It could be used, too, to describe money market operators who’ve been offended by recent speeches given by the Reserve Bank’s deputy governor, Andrew Hauser.

Hauser’s objective in using language such as “false prophets”, “charlatans” and “buffoons” wasn’t to create a new class of sooks but to warn against overconfidence in predicting where the economy is heading.

If he cops some Aussie sledging for doing that then it’s a price well worth paying for the nation’s sake.

Many economic commentators seem weirdly confident that they know for certain where the economy is heading.

My greatest criticism is of those who fire up their models that of necessity are reliant on the past performance of the economy – as if nothing ever changes.

A classic example is the dreaded wage-price spiral that was evident in the early 1980s when Australia had a centralised wage-fixing system and union membership exceeding 50 per cent of the workforce compared with less than 13 per cent today.

Many of those arguing for further interest rate increases had cited the risk of a wage-price spiral as one of their justifications. Yet the Reserve Bank has repeatedly said there is no evidence of it materialising.

These Recessionistas speak of an inflation crisis when the underlying inflation rate is less than 4 per cent, not a long way above the Reserve Bank’s mandated target band of 2-3 per cent.

Hauser points out that “eye-catching language secures clients”, his take-home message being to refrain from overconfidence in predicting where the economy is heading.

It was only a few weeks ago when Recessionistas were demanding 2-3 cash rate increases. Is it possible they had advised their clients that the Reserve Bank would be forced to increase the cash rate?

If so, in other professions this would be called a conflict of interest.

Some have protested that they are advocating further cash rate increases to avoid a recession, with all its horrible economic and social consequences. With the ABS reporting in its most recent release that quarterly GDP grew at a meagre 0.1 per cent it’s implausible that further cash rate increases could keep Australia out of recession.

Indeed, per capita GDP has contracted in the last four quarters reported, Australia saved from an extended recession only by population growth fuelled by a bounce-back in immigration following the border closures of the pandemic period.

Perhaps the view of some Recessionistas is that we need a good recession to clean out the pipes and get rid of low-productivity workers from the paid workforce. Wow, average labour productivity would rise, making the economy better off without them!

My concern is that recessions tend to be self-perpetuating; that they smash business and consumer confidence, which takes a long time to recover.

And yes, I confess to a social concern: low-skilled workers who are thrown out of their jobs can become stressed and violent towards their partners and children.

When I entered parliament in 1998, I set up a bipartisan group, Parliamentarians Against Child Abuse, having seen the consequences of unemployment in low-income communities.

Stick that into your economic models.

Hauser’s laudable message is don’t be over-confident in your predictions of where the economy is heading. Instead, observe the data constantly and make the best judgements based on highly imperfect information that you can.

Sounds sensible to me.

That data should include not only ABS releases, which report dated data, but real-time data issued by banks and employment agencies such as Seek. And it should and does include frequent Reserve Bank liaison with the business community.

And perhaps the ABS should abandon its monthly CPI series, which can be notoriously unreliable owing to its limited coverage of consumer items and vulnerability to temporary increases in the prices of some items owing to poor weather and overseas conflicts.

In my view, the emerging data could justify a pre-Christmas cash rate reduction or one or more in the New Year. That is, if the Reserve Bank takes seriously its dual mandate of low inflation and full employment – which Hauser and Governor Michele Bullock assure with enthusiasm that it does.

That’s my opinion. Others are welcome.

But it is ironic that one of the strongest criticisms of the Reserve Bank before the recent reforms implemented by Treasurer Jim Chalmers was that it operated as a cloistered monastery, unwilling to share its thinking with the public. Now that it is doing so, its vociferous critics are offended. People living in glass Hausers should not throw stones.

Craig Emerson is managing director of Emerson Economics, director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s College of Business. He writes a fortnightly column for the Financial Review.

High-level dialogue shows China chill is ending

The Australia-China High-level Dialogue to be held in Adelaide later this week will be the first on Australian shores in more than four years. The Dialogue’s resumption last September in Beijing signalled progress in the stabilisation of Australia’s relations with China. The Eighth Dialogue is an opportunity for further improvements in the Australia-China relationship.

Most of the trade barriers between our two countries have now been removed thanks to careful, consistent diplomacy on both sides.

The Eighth Dialogue, led on the Chinese side by Wang Chao, President of the Chinese People’s Institute of Foreign Affairs, will broaden the bilateral conversation by including not only trade but also broader economic policy issues including the energy transition.

Among the Australian delegates will be the CEO of the Australian Renewable Energy Agency, Darren Miller, and the CEO of the Minerals Council of Australia, Tania Constable. Australian production of green iron, for use in low-carbon production of Chinese goods, is but one example of the bilateral energy-transition opportunities of the future.

As trade minister, I released a joint food study with my Chinese counterpart in 2012 which encouraged two-way investment in agriculture, so it is good to have as Australian delegates the CEO of the Australian Centre for International Agricultural Research, Professor Wendy Umberger, and the Chair of CBH Group, Simon Stead.

Since last year’s Dialogue, China has removed tariffs and quarantine restrictions on most of the goods to which they had been applied in recent years, thanks to the purposeful work of trade minister, Don Farrell, and his Chinese counterpart, Wang Wentao, other ministers and senior officials.

At the Dialogue, Chair of Wine Australia, Dr Michele Allan, will no doubt promote the Australian wine industry which has benefited greatly from the removal of China’s tariffs.

CEO of Seafood Industry Australia, Veronica Papacosta, will make the case for the removal of quarantine restrictions on Australian lobster.

The participation in the delegation of former foreign minister, Julie Bishop, who co-chaired the forum from 2014 to 2018 and will lead one of the Dialogue sessions, will add a level of bipartisanship to the Australian delegation.

The presence in the delegation of secretary of the department of foreign affairs and trade, Jan Adams, and Australia’s ambassador to China, Scott Dewar, will provide high-level official representation from the Australian side.

China’s delegation is expected to include China’s Ambassador to Australia Xiao Qian, China’s former Ambassador to the United States and Japan Cui Tiankai, and former Minister of the State Council’s Office for Overseas Chinese Affairs Dr Qiu Yuanping.

Since last year’s Dialogue, Australia’s prime minister Anthony Albanese has visited China and China’s premier Li Qiang has visited Australia. Both visits have created momentum for an improving relationship.

Australia has a strong interest in the global rules-based trading system presided over by the World Trade Organization and was a founder of APEC. Both have been under pressure in recent times, but our two countries can make a valuable contribution to returning to the systems that have underpinned our prosperity.

While in Beijing for the resumed Dialogue, and again in Australia earlier this year, I had the opportunity of productive discussions with China’s foreign minister, Wang Yi, concerning the restoration of the rules-based system and proposals for strengthening APEC.

Last year’s resumed Dialogue was conducted in a friendly and sometimes robust spirit. Strident diplomacy in isolation rarely works. Face-to-face discussion often does. All 20 Australian delegation members will be given an opportunity to speak at the Adelaide gathering.

Differences in national positions on geopolitical matters are bound to arise, but nothing is lost from discussing them.

The strategic partnership between Australia and China announced in April 2013 has laid the foundations for a stronger relationship between our countries. Led by Australia’s prime minister, Julia Gillard, we met President Xi Jinping on the sidelines of the Boao Conference and signed the agreement with Premier Li Keqiang at the Great Hall of the People in Beijing.

In 2014, President Xi announced the commencement of the High Level Dialogue during his visit to Australia. The relationship was sound and trade minister Andrew Robb soon finalised a free trade agreement with China.

But in the early 2020s relations deteriorated.

Visits to each other’s countries in 2023 by leaders, and the resumption of the High Level Dialogue, have helped stabilise the Australia-China relationship. 

This week’s High Level Dialogue involving senior government officials and representatives of industry, academia and the arts is further testimony to an improving relationship.

Craig Emerson is co-chair of the Australia-China High level Dialogue. He was minister for trade 2010-2013. He is director of the APEC Study Centre at RMIT University, managing director of Emerson Economics and adjunct professor at Victoria University’s College of Business.

RBA must say no to the Recessionistas

At Tuesday’s meeting, the Reserve Bank board should ignore incessant demands for cash rate increases that would plunge the economy into recession. One Recessionista has gone so far as to accuse Reserve Bank Governor, Michele Bullock, of being beholden to the Albanese government as evidenced by her refusal to lift the cash rate further.

Australia has been in a per capita recession since early 2023, its strong post-pandemic immigration keeping it out of a popularly defined recession of two successive negative quarters of economic growth.

At the same time, the annual inflation rate has more than halved from a peak of 7.8 per cent at end-2022 to 3.8 per cent in the June quarter of 2024.

Of greater interest to the Reserve Bank is the trimmed mean inflation rate, which has fallen to 3.9 per cent in the June quarter from 6.8 per cent in the December quarter of 2022, the sixth successive quarterly fall.

The Recessionista who suggested that the Reserve Bank might be keen to avoid upsetting politicians, added late last month that if the Reserve Bank were doing its job, it would immediately lift the cash rate by 50 basis points.

Another Recessionista was demanding in late-July that the Reserve Bank increase the cash rate by 40 basis points at its Tuesday meeting, followed by another 25 basis points in September.

The call for a cash rate increase has persisted into this week.

Plenty of other economists have demanded that the Reserve Bank jack up the cash rate again, forthwith.

Much of the frenzy seems have arisen from the release of two concerning monthly inflation figures, which were tempered by a more comfortable quarterly number released on the last day of July. The Australian Bureau of Statistics might give consideration to the utility of releasing monthly inflation data that are but partial measures of inflation, and therefore inaccurate. If nothing else, these monthly numbers sure get the Recessionistas excited.

But the Reserve Bank seems to be making wise decisions. Deputy Governor Andrew Hauser, a Briton, has pointed out that the first priority of the Bank of England is to bring inflation back to target, whereas in Australia the Reserve Bank has a “more balanced” mandate of controlling inflation while avoiding job losses.

In fact, the Reserve Bank is bound by law – the Reserve Bank Act of 1959 – to contribute to the achievement of full employment.

Australia’s economy grew at a meagre annual rate of 1.1 per cent in the March quarter, more recent retail sales have been weak and almost all the recent job creation has been funded by governments.

The Reserve Bank has confirmed there is no price-wage spiral and that inflation expectations are well anchored.

Despite an avalanche of criticism, the Reserve Bank is taking its dual mandate seriously and making decisions based on the available data, not on models based on history or on the demands of Recessionistas.

 It is likely that the Reserve Bank will hold the cash rate on Tuesday. But to the dismay of the Recessionistas the next move in the cash rate is likely to be down, later in 2024 or in the early months of 2025.

 A valuable insight into the Reserve Bank Board’s thinking will be provided in its Statement on Monetary Policy released on Tuesday. It will contain the Bank’s forecasts of the trimmed mean inflation rate. If those forecasts are essentially unchanged, they will signal that the Reserve Bank considers it is on track to bringing inflation back into the 2-3 per cent band within a reasonable time.

 Yes, inflation is costly to the economy and to consumers. But unnecessarily high unemployment concentrates the economic pain on the vulnerable whose employment prospects depend on a recession-free economy. That the Reserve Bank cares about the unemployed is not only required by law it is also uplifting.

 Craig Emerson is managing director of Emerson Economics and director of the APEC Study Centre at RMIT University. He is an adjunct professor at Victoria University’s Centre of Policy Studies.

Albanese can’t afford distractions now

“It’s the economy” should be emblazoned on the walls of every federal minister’s office between now and the next election.

The saying, “It’s the economy, stupid”, entered political folklore in 1992 during Bill Clinton’s successful campaign for the presidency against incumbent George H W Bush. President Bush’s ratings had fallen from a stellar 90 per cent approval in March 1991 to a disastrous 64 per cent disapproval within 18 months during which time the economy had slumped into recession.

In Australia, a succession of Reserve Bank interest rate increases in response to a post-pandemic leap in the inflation rate has brought economic growth almost to a standstill. Add an increase in immigration, much of it comprising foreign students returning to Australia’s universities following two years of border closures, and Australia is dealing with high rents, an inflation rate still above the Reserve Bank’s 2-3 per cent range and weak economic growth.

Yet, as long as the Reserve Bank doesn’t overreact, the economic trend is encouraging: inflation is falling, rents are beginning to moderate, and unemployment is stabilising. Unlike many other advanced economies, Australia has avoided recession.  

These circumstances are reminiscent of those of the mid-1980s, when Bob Hawke, Paul Keating and their colleagues explained the international circumstances that were damaging the Australian economy – at that time, a collapse in world agricultural commodity prices – and urged Australians to stick together and see it through. In these difficult economic circumstances Labor convincingly won the 1987 election.

From 1 July this year, the recalibrated Stage 3 tax cuts came into force, giving a tax cut to every taxpayer, along with $300 a year in support for all households for their electricity bills. 

Yet the public conversation at the time of providing cost-of-living relief was dominated by a recently elected Labor Senator crossing the floor, followed by talk of Muslim groupings running candidates against Labor at the next election. The government seemed easily distracted from talking about the cost-of-living relief it was providing.

Unavoidably a government needs to deal with the issues of the day, but the imperative is to stay on message wherever humanly possible.

In America, Donald Trump understands and practises this with great effect. His every utterance is designed to promote his pledge to Make America Great Again (MAGA).

The MAGA cult rose to new heights last week when followers wore bandages on their ears at the Republican Convention. Trump posted on his social media site that the would-be assassin’s bullet took off his entire ear, but he went to the doctor who told him his ear healed faster than anyone he’d ever seen. Trump claimed his ear began growing back the next day and the doctor said: “Nobody regrows ears like that.”

So effective is Trump’s messaging that his disciples believe anything he says, and the media barely bothers to challenge it.

Trump’s evangelical Christian followership might help explain much of his popularity, but the Democratic Party does not have a single, unifying message. More fundamentally, as Paul Keating has pointed out, the Democratic Party’s political problem heading into November’s presidential election is that it has lost touch with the concerns of ordinary working Americans.

Perhaps a new presidential candidate following Joe Biden’s announcement that he will not recontest will enable to party to reset its campaign story.

The Australian Labor Party has not befallen that fate, having supported working Australians and the elderly through Medicare and subsidised medicines, increases in the minimum wage and in wages for aged-care workers, greater support for working mothers, and offering free TAFE to thousands of Australians wanting to improve their skills.

But the Albanese government’s political success will depend on it crafting a message on the economy and sticking with it without distraction. That means remaining out of the culture wars between the hard left and the hard right, while ignoring the daily taunts of the Greens who seem to hate Labor more than they do the Liberal Party.

Labor can bring economic management into the climate wars the Coalition has reignited by pointing out that the Peter Dutton’s plan to prohibit large-scale renewables in favour of nationalised nuclear power would quadruple electricity prices and oblige taxpayers to subsidise coal-fired power stations until nuclear power arrived in the 2040s.

By developing and sticking with a message about the economy, the Albanese government can appeal to the great majority of Australians who have no interest in following politics on a daily basis, deploying a 21st century version of the Hawke-Keating message of let’s stick together, let’s see it through. After all, it’s the economy, stupid.

Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s Centre of Policy Studies. He was an economic adviser to Bob Hawke.

Economic logic always trumps junk politics

Voters, sooner or later, will reject political parties that resolutely defy the laws of economics. Britain’s Conservative Party suffered that fate. A Trump-led Republican Party would follow. As would a Dutton-led Coalition if it is serious about its recently announced policies.

Adam Smith didn’t conjure the idea of the gains from the division of labour. Nor did David Ricardo contrive the notion of comparative advantage. Both existed as immutable laws since the dawning of civilisation.

In 2016, Britain’s Conservative prime minister, David Cameron, himself a remainer, announced a referendum on Brexit, responding to the idea promoted by Nigel Farage and the United Kingdom Independence Party (UKIP) that it was better for Britain to sell into its own small market than into the European Union’s big market.

Boris Johnson jumped aboard the SS Brexit, the referendum passed with less than 52 per cent of the vote, the economy tanked, inflation hit 10.7 per cent and now, less than one-third of Britons consider Brexit was a good idea. Brexit has become Regrexit.

Meanwhile, across the Atlantic, Donald Trump was elected President of the United States on a promise to Make America Great Again (MAGA) by spurning the rules-based global trading system. Trump withdrew the US from the Trans-Pacific Partnership on his first day in the Oval Office and soon began waging a trade war against not only China but also the European Union, Mexico and Canada.

In the MAGA world view, imports are bad, the only gains from trade being from selling American products abroad. The Biden administration has kept most of the Trump tariffs in place in the hope of retaining the swing states it won to defeat Trump in 2020.

In response to investigations into Chinese government subsidies on the production of electric vehicles, the European Union is imposing tariffs of around 30 per cent on imports of the three main Chinese models, while the Biden administration has announced a plan to almost quadruple tariffs on Chinese-made electric vehicles to 102.5 per cent.

Trade wars were a major contributor to the outbreak of World War II. A second Trump presidency would re-create those preconditions.

Mercifully, in Australia bipartisan support for free trade remains, the Albanese government having nudged it further by announcing the removal of 500 nuisance tariffs and agreeing to remove anti-dumping duties on a range of Chinese steel products.

The Albanese government’s A Future Made in Australia has attracted criticism. Comprising support for private sector initiatives for the energy transition and for the development of critical minerals in an increasingly fraught geopolitical environment, it amounts to A$22.7 billion over a decade – less than $3 billion per annum. It is dwarfed by the energy transition subsidies in the Biden administration’s Inflation Reduction Act, which exceed A$1,100 billion.

It would be dwarfed, too, by the Coalition’s plan to re-nationalise the baseload electricity generating system in Australia. Its promised fleet of seven nuclear power stations would cost taxpayers hundreds of billions of dollars.

While not all privatisations of government business enterprises have worked out well, nationalisations rarely do. The demise of the Soviet Union was testimony to that.

And since the Coalition has committed to baseload nuclear power stations that couldn’t be operating until at least the latter years of the next decade if not the early 2040s, it would need to oblige taxpayers to pay for the refurbishment of Australia’s fleet of ageing coal-fired power stations until then, and probably build new ones.

In addition to renationalising the electricity generating system, the Coalition has promised to give the courts the power to order major supermarkets to divest some of or all their stores where they have been found to misuse their market power.

Forced divestiture of supermarkets is a policy opposed by my independent review of the grocery code of conduct, by former ACCC chairman Professor Graeme Samuel, former Productivity Commission chairman Peter Harris, the ACTU and the National Farmers’ Federation.

Curiously, while the Nationals joined hands with the Greens in advocating forced divestiture at the commencement of a Senate inquiry into supermarkets, neither they nor the Liberals supported it in the inquiry’s final report. Yet they both supported it a couple of months later.

Introducing greater competition into Australia’s supermarket industry has merit, but that is best achieved by removing restrictions such as planning and zoning laws that have the effect of protecting incumbents.

Governments ignore the immutable laws of economics at their peril. Doing so might help them get elected as voters are attracted to populist proposals. But when the cost of the policies emerges as weak incomes growth and high inflation, those politicians will be tossed out and condemned as failures.

 Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s Centre of Policy Studies.

Why this is a practical, workable supermarket code of conduct

A mandatory Food and Grocery Code of Conduct that provides for heavy penalties for deliberate or careless breaches while encouraging the resolution of disputes through mediation and arbitration incorporates the best of both worlds. Such are my recommendations in the final report on the review of the Code.

 The federal government has announced it accepts all 11 of my recommendations.

 While making the Code mandatory, those recommendations also import and strengthen the dispute-resolution provisions of the existing voluntary Code.

 Constitutional constraints prevent a government or a parliament imposing arbitrated outcomes on private parties; only the courts can do this.

 However, I have obtained the in-principle agreement of Woolworths, Coles, ALDI and Metcash to pay small suppliers up to $5 million in compensation as an outcome of arbitration – which for those suppliers is a large sum. I thank these companies for their cooperation in this groundbreaking outcome.

 The first port of call when resolving disputes will be the supermarkets’ own mediators, who have deep knowledge of the business, including of the buyers and senior management. But if a small supplier wanted an independent mediator or arbitrator, an expert would be made available from a panel formed in advance by the small business ombudsman.

 Critics of making the Code mandatory argued that this would forfeit the dispute-resolution features of the voluntary Code.

 But my recommendations and the in-principle commitment of Woolworths, Coles, ALDI and Metcash enable both enforceability and strengthened dispute resolution – the best of both worlds.

 Penalties for non-compliance with the Code are essential. The Code will be enforceable by the Australian Competition and Consumer Commission (ACCC). In my interim report, I recommended maximum penalties for the most serious breaches – such as systemic breaches and a supermarket failing to act in good faith – of the highest of $10 million, three times the benefit gained from the breach or 10 per cent of turnover in the 12 months preceding the breach.

In the Final Report I am also recommending maximum penalties of more than $1 million for all other breaches.

 Together, these are the heaviest penalties of any industry code of conduct.

 The mandatory Code will apply to grocery retailers and wholesalers with annual revenue of more than $5 billion, which are Woolworths, Coles, ALDI and Metcash. It is likely that Costco will exceed the $5 billion threshold in the foreseeable future. If Amazon began selling fresh food in its own right it too could be subject to the Code at some stage.

 I have carefully considered arguments for other retailers to come into the Code, including the sale of nursery plants by Bunnings, the sale of wine, beer and spirits by supermarket affiliates, and of non-prescription items by Chemist Warehouse.

 However, I have recommended that the Code continue to apply to supermarkets as conventionally understood as places for regular grocery shopping, as well as Metcash as the largest grocery wholesaler.

 My concern about extending the Code to other retailers and other products was that casting the Code’s net far and wide could constitute regulatory overreach with unforeseen and unintended consequences.

 The review received strong evidence from smaller suppliers that they feared retribution from supermarkets if they made a complaint or exercised their rights under the voluntary Code.

 I have recommended strengthening the Code to ensure that supermarkets and their buying teams do not engage in retribution against suppliers, including where suppliers seek to make complaints against them under the Code.

 I have also recommended a new mechanism to enable suppliers fearful of retribution to make confidential complaints to the ACCC.

 The review heard evidence that suppliers of fresh produce are especially vulnerable owing to the perishability of their products. I have recommended new protections for these suppliers.

 More generally, the purpose of an industry code of conduct is to help rebalance the highly uneven bargaining power of a member of an oligopoly and its smaller suppliers.

 Oligopolies are common in Australian industry. In principle, the first-best policy response is to use competition policy to introduce greater competition into the relevant industry.

 The resurrection of national competition policy by the federal, state and territory might be capable of achieving this, including through a reconsideration of state and local government restrictive planning and zoning laws that favour incumbents over prospective market entrants.

 Well-designed, market-specific codes of conduct can play an important part in this rebalancing of bargaining power. But they need to be designed carefully, so that they are both effective and well targeted and unambiguously do more good than harm. Those were the principles guiding the review of the grocery code of conduct.

 Craig Emerson was the independent reviewer of the Food and Grocery Code of Conduct. He is managing director of Emerson Economics, director of the APEC Study Centre at RMIT University and adjunct professor at the Centre of Policy Studies in Victoria University’s College of Business.

Recessions are nasty and shouldn’t be engineered to tame inflation

Australia’s economy is operating at zero growth, yet economists are warning it is running too hot, forecasting it will fuel inflation in the coming quarter. That seems implausible, but even if those economists are right, it doesn’t mean the Reserve Bank should be jacking up interest rates. 

Inflation is at 3.6 per cent, sharply down on its peak of 7.8 per cent less than 18 months ago. The present inflation rate is around where, in the middle of last year, the Reserve Bank forecast it to be by now, and only a little above the target range of 2-3 per cent.

Talk of a need to increase the cash rate is misguided – especially so when the main culprits behind the 3.6 per cent inflation rate are identified.

Alcoholic drink prices spiked (so to speak) but was that due to an excise increase rather than excess demand for beer, wine and spirits?

Dwelling rents have continued to rise owing to a housing shortage. How would an increase in the cash rate reduce them? By throwing renters onto the streets to reduce the demand for rental accommodation?

Insurance premiums have risen sharply too. Is the right macroeconomic policy prescription to increase interest rates to such heights that people cannot afford to take out insurance?

Private school fees were hiked at the beginning of the school year. Would better-off parents truly switch their children to state schools if the Reserve Bank increased the cash rate?

If this analysis is right – that the main culprits behind the inflation rate are insensitive to increases in the Reserve Bank’s cash rate – then the Bank would need to go much harder against discretionary spending to bring down the overall inflation rate.

That, dear friends, is a nasty recession.

New deputy governor, Andrew Hauser, recently told the Financial Review that he and his colleagues at the Reserve Bank take seriously their dual obligation of getting inflation into the 2-3 per cent band while preserving employment gains from not going too hard. This, together with similar statements from Governor Michele Bullock, is very encouraging.

 The Reserve Bank has readily acknowledged that the lags from monetary tightening are usually long and variable.

Who’s to say that the economic contractionary effects from the existing monetary tightening have already fully played out?

 While Deputy Governor Hauser has rightly pointed to the social costs of high inflation the Reserve Bank does not appear to be in a desperate hurry to drive it into the 2-3 per cent band at the cost of a fully blown recession. Moreover, the Reserve Bank has readily acknowledged that there is little evidence of a price-wage spiral.

 Recessions, too, inflict heavy social costs on the vulnerable.

 Australia’s experience with recessions is not one of slipping into them and just as easily sliding out again. They are dreadful in human terms, scarring many of the workers and small businesses who lose their livelihoods.

 Older workers might never regain employment and lower-skilled younger workers can be out of work for years. Small business owners who have become insolvent might lose their family homes, which they often are required to put up as security against their business borrowings.

We live in bizarre times when an economy that is not growing at all is considered to be growing too fast, with some leading economists forecasting the Reserve Bank will need to increase the cash rate 2-3 times this year. Others assert that, with the Reserve Bank refusing to adopt their tightening prescription, it must be a lapdog of the Albanese government.

A third explanation is that the Reserve Bank accepts its dual role readily and has not seen circumstances that warrant it increasing the cash rate.

 Recessions should not be considered merely as an antidote to an inflation rate sitting just outside the mandated 2-3 per cent band. The economic and social cost of a 3.6 per cent inflation rate for a little longer than desirable is small compared with that of a confidence-sapping, livelihood destroying recession.

 Those who consider the Reserve Bank could engineer a mild recession that’s worth having to fine tune the inflation rate down from 3.6 per cent to the 2.5 per cent midpoint of the mandated range might contemplate Australia’s history: unemployment exceeded 10 per cent in the recessions of the early 1980s and the early 1990s.

 This is not a prediction but a warning – don’t play with recessions; they are like a pack of wild dogs mercilessly mauling innocents who might never recover.

 Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s College of Business.

We must protect Australia’s free and open economy

Productivity growth across the developed world continues its long-term slide, denying nations the prospect of the increases in prosperity that defined the post-war era until the end of the 20th century. Now, and into the foreseeable future, western nations will engage in a futile squabble with developing countries over which gets the bigger share of any growth. These contests, too, will sharpen within each developed country’s borders.

In the immediate post-war period, with the formation of the General Agreement on Tariffs and Trade – the GATT – a consensus was built around the virtues of encouraging trade among nations, reaping the gains from specialisation in accordance with the Ricardian law of comparative advantage.

 Trade liberalisation was good for peace, too, as nations became economically interdependent following the isolation and protectionism of the interwar years. The mission of the trade liberalisers – to avert World War III – was being achieved.

 China’s economic rise since the late-1980s, and the increasing militarisation this increasing wealth has enabled, has spooked much of the western world – near-neighbours and the US especially – setting up superpower rivalry in the Asia-Pacific region.

 An early casualty has been the post-war rules-based trading system. Once the leading champion of trade liberalisation, the US no longer believes in it. By refusing to appoint new judges to the World Trade Organization’s Appellate Body, the US has destroyed the dispute-settling system.

 Without blinking, President Biden earlier this month announced a 100 per cent tariff on Chinese electric vehicles, along with sharply increased tariffs on Chinese steel and aluminium.

 Biden is desperate to ward off the threat from Donald Trump at the coming presidential election, needing to hold onto the swing states he won from Trump in 2020.

 Trump considers American-made exports to be good and imports into the US to be bad. It’s at the heart of his philosophy to Make America Great Again (MAGA). The MAGAs have gained control of the Republican Party that once was a bastion of free traders. On his first day as President, Trump tore up President Obama’s pivot into Asia – US membership of the Trans-Pacific Partnership.

 For the first time since World War II, there is bipartisan American political support for protectionism and against free trade.

 Despite criticism of some features of the Future Made in Australia, it could not be said that the major parties have abandoned the Hawke-Keating open, competitive model extended by the Howard, Rudd, Gillard and Turnbull governments. Indeed, the Albanese government has announced to removal of 500 so-called nuisance tariffs https://www.afr.com/business-summit/chalmers-to-abolish-500-nuisance-tariffs-clears-way-for-gas-tax-deal-20240307-p5fahz, taking Australia closer to Singapore as a tariff-free country. It is also streamlining foreign investment approval processes and a new, Hilmer-style competition policy reform program is being developed.

 But a demographic trend is underway that is questioning the open, competitive model. Young voters and those approaching middle age are replacing the Baby Boomers. They are disposed to voting for the Australian Greens and, like the Greens, want more, not less, government intervention.

 Unless they are the children of the wealthy, they deeply resent the affluence of many Boomers that is being denied them. Nowhere is this more evident than in the housing divide; many young voters have lost hope that they will ever be able to afford their own homes.

 Greens polices such as rent control, which would make matters worse by crimping the supply of rental accommodation, are nevertheless popular, if only because the Greens are seen to empathise with their plight.

 At the other end of the political spectrum, the Coalition has identified curtailing immigration as the solution, hoping to appeal to those voters who are not enamoured of migrants.

 A robust debate about tax reform in relation to housing supply is desperately needed. What are the merits of reconsidering negative gearing for new dwellings and reducing the capital gains tax discount for investors in rental properties? How do we get rid of one of Australia’s worst taxes – state stamp duty on property transfers?

 As for wider tax reform, broadening the base to lower the rates of personal tax is the right principle, but oh, the squeals from the wealthy and their backers in the parliament and the media if any such proposals are contemplated!

 Almost none of the reforms proposed in 2010 by former treasury secretary, Ken Henry, have been implemented and one of the few that was legislated – a tax on mineral rents – w rescinded by the Abbott government, along with the carbon price.

 The open, competitive model is the only pathway to assured prosperity shared fairly. The hostility towards it among disheartened younger Australians will make economic reform even harder.

 Following the next election, the federal government should work with the states on housing tax reforms that give young people some hope of owning their own homes. Unless, of course, the major parties are pressured  into ruling out every reform proposal by a craven media during the election campaign.

 Craig Emerson is managing director of Emerson Economics. He is Director of the APEC Study Centre at RMIT University and an adjunct professor at Victoria University’s Centre of Policy Studies. He was Australia’s trade minister from 2010 to 2013.

Gas critics are signing up for coal and candles

Critics of the Albanese government’s gas strategy seem content for governments to prolong the lives of coal-fired power stations at taxpayers’ expense. Or they are more relaxed than most householders about nightly blackouts.

Australian governments, state and federal, are going flat out with the energy transition. During the day, solar and wind already generate most of the nation’s electricity needs. If Australia is to take advantage of the opportunity to export green iron and aluminium to Japan, China and Korea, it will need to generate much more renewable energy.

But at night, the demand for electricity will continue to far exceed supply from less-reliable wind generators. On top of household usage, factories on nightshift will continue to need reliable electricity.

And gas will be needed for producing chemicals and plastics for use in the production of everyday products including cheap clothing sold in large department stores.

Of course, we could let all those jobs and factories go overseas to east and south Asia where they are produced with fossil fuels but that would be hypocritical.

In time, big batteries will play an important role in replacing coal-fired generators for electricity supply at nights, as will pumped hydro. But commercially available big batteries can currently discharge for only four hours and it’s taking a long time for large-scale pumped hydro to come on stream.

 Construction of Snowy Hydro is many years behind it original, overly optimistic schedule and its costs are blowing out by many orders of magnitude.

 All the while, the existing fleet of coal-fired power stations is getting older and less reliable.

 Ten coal-fired power stations have closed since 2012 and retirements have been announced for almost all the remaining fleet. Owners have announced that half will be gone by 2035, but the Australian Energy Market Operator (AEMO) forecasts that the remaining fleet will be retired 2-3 times faster than those announced closure dates.

As these ageing coal-fired plants become more unreliable, their owners won’t have any incentive to refurbish them.

Those arguing against new gas-fired power generation are condoning taxpayer subsidies for ageing coal-fired power stations.

It’s already happening. The Victorian government is underwriting the continued operation of the Loy Yang A brown-coal power station.

Meanwhile, Origin Energy and the NSW government are in talks to extend the life of the Eraring coal-fired power station in response to fears of potential blackouts between 2025 and 2027 – a move opposed by former state treasurer, Matt Kean.

As the transition to renewables continues, the climate movement should ask itself: is it better to replace highly emitting and increasingly unreliable coal plants with a mix of lower emissions from cheaper gas, renewables and batteries, or is it better to lock in higher electricity prices and carbon emissions by keeping coal plants operating longer?

Given the urgency of emission reductions, it seems an indulgence to wait until hydrogen power generation or some other not-yet-commercial, low-emissions technology is ready for deployment at scale.

That’s the choice we face – expensive delay or pragmatic transition that includes a crucial role for gas.

The gas strategy has been heavily criticised for allowing the opening of new gas fields, but its analysis makes clear new gas will be needed to support more renewables at home, as well as supporting our trading partners in their energy transitions.

Japan and Korea lack the solar and wind resources to switch quickly to renewables. In addition to keeping the lights on and their factories operating, they need gas for heating.

 Yet as signatories to the Paris Agreement they have made commitment to achieve zero net emissions. They can’t make that transition without gas.

 Australia can and should help Japan, Korea and China make the transition to net zero through the supply of gas.

Eventually, Australia could use its abundance of solar resources to add green value to iron and bauxite and to export hydrogen as ammonia for energy usage. This would enable those countries to export zero-carbon products to the European Union and Britain without being penalised by their Carbon Border Adjust Mechanisms (CBAMs).

 The only option worse than prolonged taxpayer funding to keep coal-fired power stations running is indefinite funding to do so. That’s the Coalition’s plan – keep coal plants emitting until the 2040s and build new ones as old ones die, waiting for nuclear power generators to be installed and generating power at treble the cost of renewables.

 The gas strategy announced last week by the Albanese government is properly seen as a means of accelerating the energy transition in Australia and abroad. It sure beats obligatory candlelit evenings and paying coal-fired power stations to stay open for extended periods of time.

 Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies. Emerson Economics has no gas industry clients.