public policy climate change

The Public Policy Recovery Opportunity

By Dominic Holden


The speed at which the COVID-19 health and economic crisis hit forced the government to act quickly. Immediate fiscal stimulus spending, including the $130b JobKeeper package that supports 6 million workers, has reached previously unimaginable heights and is well above that of similar economies. However, there is a reason that policy normally takes time to develop and implement, with crude JobKeeper eligibility requirements having a harsh impact on both employers and employees. 

As the curve begins to flatten, and with short term stimulus policy in place, attention must now shift to the medium-term policy response. With the benefit of time now on our side, Australia has the opportunity to devise public policy that stimulates the economy and tackles the defining battle of this generation: climate change.

Quick Thinking 

The government’s responsibility is to use public funds effectively, and deriving insightful policy that maximises outcomes for the populace taking time. Thus, effective policy tends to be slow in development and implementation. However, due to the rapid pace at which the COVID situation developed, time was, unfortunately, a scarce resource. As the queues at Centrelink lengthened and without the luxury of time, the government was forced to act quickly.

Unemployment at Centrelink Public Policy

JobKeeper rapidly delivers $130b to workers in businesses hit hardest by COVID, providing immediate financial relief to those that have suffered in the short term in industries such as hospitality, retail and tourism. Designed to boost spending in the economy, preserve employer-employee relations and enable otherwise viable businesses to weather short term cash-flow issues, JobKeeper was rolled out remarkably quickly, with cash hitting individual’s bank accounts last week. 

The Federal Government’s economic response is to be commended for its speed and magnitude. Extending existing support to SME’s and implementing new programs such as JobKeeper have cost the public purse $192b according to the ABC, totalling for around 10.6% of 2019 GDP. As evident below, Australia’s immediate fiscal impulse, defined as additional government spending and foregone revenues designed for immediate impact, is ranked highly in comparison to other similar economies.

This marks a radical departure from the ideology of the current conservative government, who just a year ago boasted about returning the first federal budget surplus in a decade. After years of campaigning around the need to “balance the books” and reduce debt, the government was forced to take a page out of the 2008 GFC playbook, throwing money out the window to promote spending and provide a support network to 6 million potentially unemployed and underemployed people. This response encourages spending in the economy and eases the cash-flow pressure on business and is thus likely to contribute positively to the post-COVID economic recovery.

The Reality of Policy on the Fly

But as we are coming to realise, there is a reason that governments prefer not to create economic policy on the fly. JobKeeper’s eligibility rules were decisive and crude. A single mother, working casually at a pub but changed jobs eleven months ago is ineligible, whereas the eighteen-year-old who lives at home and works three hours a week at a café now receives $1,500 pre-tax fortnightly. While the single mother may well be eligible for other lesser support from Centrelink as a result of her circumstances, it is undeniable that the JobKeeper policy has allocated cash to those who may not necessarily need it most while others miss out, leading to a suboptimal effect in achieving its goals.

Additionally, the program creates unintended consequences, such as employees receiving the flat rate refusing to work when offered shifts, and some employers suffering cash flow issues as they are forced to pay employees above normal rates up to a month before government reimbursement. The policy has created a fierce debate between those wanting to expand and refine the eligibility criteria, and those ensuring intertemporal efficiency is considered when creating enormous debt burdens on future generations. 

The consensus is that JobKeeper has a positive economic and social impact despite its shortcomings, providing timely economic support in a crisis. However, a key lesson emerging is that while policy is never perfect, the lack of time certainly doesn’t help its effectiveness. 

Shifting Focus

Thankfully, with Australia beginning to emerge from the health crisis, and an overwhelming short-term fiscal response in place, we can shift our attention to policy for the medium term. Time is now on our side, and the nation has an incredible opportunity to engage in policy discussion that defines our direction for the coming decades.

“Never let a good crisis go to waste”

Winston Churchill.

While the COVID situation is dramatically different from World War Two, Churchill’s sentiment that disruption can be leveraged to create change rings true. Australia has seen seismic and previously incomprehensible shifts in the way we operate socially and at work. Business is not as usual, and we must now embark on defining the society that we wish to participate in post-COVID. While this presents a challenge, it also creates an opportunity to forge a future we want to see.

The fundamental goal of macroeconomics is to maximise the material and non-material living standards of the populace. While Australia has traditionally had relatively high standards of living, climate change presents an enormous challenge to its future prosperity.

The Climate Crisis 

The five year period between 2015-19 is the warmest ever recorded, with the global average temperature rising by 0.2 degrees ( C ). As the world gets warmer, the consequences are becoming more evident. The consensus of scientific research demonstrates a clear relationship between climate change and extreme weather events, such as the recent devastating bushfire season and hard-hitting local drought that ravage delicate ecosystems and disrupt livelihoods of everyday people. These issues impact locally, and the inconvenient truth is that they are heavily contributed to locally. As evident below, Australia is one of the highest CO2 emitters per capita in the world.

CO2 emissions per capita public policy

Normally, good ol’ Aussie would be proud to be a world-beater. But to be listed in 2017 as a higher per capita contributor than traditional powerhouses of the United States and the United Kingdom, similar economies such as New Zealand and Canada and emerging players China and India should not create a sense of achievement down under. 

Those against climate action tend to argue that Australia is a relatively small player in terms of total emissions, and any action is dwarfed by that of larger players. While this may be true to a certain extent, that does not prevent us from taking action and ignores that the environmental and economic impact is already being felt in our backyard. As Australia endured temperatures 1.5 degrees hotter than average in 2019, bushfires raged across the country, drought continued to impact the Murray-Darling basin and the Great Barrier Reef suffered another mass bleaching event. Even Reserve Bank governor Phillip Lowe has expressed concern that the economic implications of climate change are profound and already impacting exports.

The Next Phase

COVID’s economic impact extends well beyond the short term, and so should public policy’s response. As I wrote last year regarding a potential future Australian recession, governments must recognise that while people are affected by economic trends, their lives are not defined by them. A state of disruption and uncertainty has undeniably had a detrimental short-term impact but has also created an opportunity to forge an economic recovery while tackling one of the largest issues facing our nation. 

While both economic prosperity and environmental recovery will be driven by individuals and business, the government has a defined and critical role to play in promoting positive behaviour and has numerous options available. Investment in sustainable infrastructure and incentives for low emissions commuting can improve productivity and boost economic activity in an environmentally responsible manner. Proper emissions guidance and investment support can help power the transition to renewable energy, while concurrent divestment from coal-fired electricity production and retraining of displaced workers into renewable industries can mitigate short term impact.

The rapid pace of the COVID crisis forced the government to act quickly, leading to suboptimal short term and intertemporal outcomes despite an overall positive impact. To face the climate challenge, we have more time to develop and implement precise, targeted and impactful policy. 

But this time is not infinite. The climate is changing at a rapid pace. Policymakers should utilise the time they do have available to develop proper medium- and long-term strategies to promote economic prosperity, while simultaneously fighting climate change. Enacting public policy that tackles these issues head-on will improve the quality of life materially and non-materially of Australians for decades to come.


Sources

ABC News, https://www.abc.net.au/news/2020-05-13/coronavirus-jobkeeper-jobseeker-hard-end-could-sink-economy/12239114, https://www.abc.net.au/news/2019-04-01/is-australia-on-track-to-meet-its-paris-emissions-targets/10920500?nw=0

ACOSS and UNSW, https://www.acoss.org.au/wp-content/uploads/2018/07/Inequality-in-Australia-2018.pdf

Australian Financial Review, https://www.afr.com/policy/economy/australia-s-rescue-package-the-world-s-biggest-bar-one-20200506-p54qdc?fbclid=IwAR0godrHkIHjKt-lyN2sddHHP5ZWOAC7Oltob6wctYF4RnWh5rrH8roSWTU

Australian Government Release, https://www.pm.gov.au/media/130-billion-jobkeeper-payment-keep-australians-job

Bruegel Database, https://www.bruegel.org/publications/datasets/covid-national-dataset/

European Commission Climate Action, https://ec.europa.eu/clima/change/consequences_en

Grattan Institute, https://grattan.edu.au/wp-content/uploads/2020/04/Shutdown-estimating-the-COVID-19-employment-shock-Grattan-Institute.pdf,

https://grattan.edu.au/wp-content/uploads/2020/05/2020-06-Start-with-steel.pdf

London School of Economics commentary, http://www.lse.ac.uk/GranthamInstitute/news/the-economic-crisis-and-the-two-great-challenges-of-the-21st-century/

OECD, https://www.oecd.org/agriculture/never-waste-a-good-water-crisis/

Our World in Data, https://ourworldindata.org/per-capita-co2

SGS Economics and Planning, https://www.sgsep.com.au/publications/insights/the-right-time-for-community-wealth-building-reform-in-australia

The Conversation, https://theconversation.com/jobkeeper-is-quick-dirty-and-effective-there-was-no-time-to-make-it-perfect-135195

United Nations Department of Economic & Social Affairs, https://www.un.org/esa/desa/papers/2017/wp152_2017.pdf

World Meteorological Organisation, https://public.wmo.int/en/media/press-release/global-climate-2015-2019-climate-change-accelerates

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Disclaimer: The views expressed in this article are solely that of the author’s, and do not necessarily reflect the position of UNIT nor the University of Melbourne. The advice given is general in nature and does not consider an individual’s personal financial circumstance. Transacting off this information is done so at one’s own risk, and individuals are encouraged to consult a finance professional before making investment decisions based off of this article.

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