Dipping the Budget’s toe in the waters of wellbeing

Jim Chalmers
Wellbeing demands departments and agencies become community partners in discovering and meeting local needs. Treasurer Jim Chalmers. (AAP Image/Lukas Coch)

Originally published at The Mandarin.

Last night, treasurer Jim Chalmers cautiously set Australia on its wellbeing economy journey. This government’s first Budget sat against a backdrop of inflationary pressures, global conflict, gloomy outlooks, floods and cost of living pressures.

Behind front page headlines today is something potentially much more interesting, exciting and profound. Steps towards a more complete idea of what’s important included a Women’s Budget statement, a commitment to an Indigenous truth-telling process, funding for improved aged care services, as well as increases in parental leave and increased access to childcare.

However, a framework is yet to be developed that will result in the kind of system change needed to reorient the economy for the long term. The treasurer’s catchphrase has been “measuring what matters”, and this Budget takes the smallest of steps towards augmenting legacy economic aggregates with more precise data that gives a fuller picture of Australians’ quality of life.

Measurement is important, but it’s a means rather than an end. It must build a thorough understanding of what’s really important in people’s lives, what’s important for the future. Then we shape the economy in service of those goals — as the PM said in his acceptance speech, “an economy that works for people”.

Neither the treasurer nor the Treasury has rushed into deciding or dictating what a wellbeing economy is or how to achieve one. This is a good thing. Measuring and managing what matters relies on knowing with some certainty what matters to who, and where.

Treasury has announced an initial consultation that will attract submissions from all the usual suspects: think tanks, academics, unions, social services, and other charity organisations and businesses with a vested interest. Alone, that approach will not yield a genuine understanding of what ‘wellbeing’ means to Australians in all their geographic, social and demographic diversity, nor how they wish to preserve the environment to sustain future generations.

This needs direct dialogue with communities, intentionally seeking out those who would not normally put themselves forward. The ACT has already conducted such a process, as have countries such as Wales in the development of their wellbeing frameworks. This has formed the basis of the ACT’s well-developed wellbeing framework. Tasmania also has a child-wellbeing strategy and is in the process of developing a broader wellbeing framework, NSW has outcomes-based budgeting and a foundation paper for a Wellbeing Budget process. A federal approach should complement these and learn from them.

For a wellbeing approach to really make a difference, a profound but underappreciated change will need to occur within the public service. To design, deliver and assess policies that genuinely respond to wellbeing, agencies must do more than apply measurement frameworks.

If this all sounds abstract, let’s take a look at the employment services system.

There is widespread agreement between service providers, policy researchers, public officials and advocates that the privatised employment services market is failing those who most need support. Voices from business, civil society, unions, advocates and religious groups have called for unemployment payments to be lifted to a level that enables people to at least afford the basics of food, housing, healthcare and transport.

The employment services system was contracted out to private providers, and the incentives in this market reflected a narrow idea of what constituted value. The market responded to this design, prioritising the high-margin activity of providing services as often as possible to those who needed them least, and neglecting the needs of the people who would most benefit from support in finding employment.

The result has been a years-long crescendo of dysfunction, amplified by a punitively low unemployment benefit that leaves recipients below the poverty line. The measurements applied to service provision assessed them in dollars spent per job filled, neglecting both the social purpose of the service system, and the needs of the people using it.
Wellbeing cannot simply be something that legacy policies are measured and iterated by. It must be an explicit goal of policy design. To deliver genuine changes in policy approaches, cultural and practical change must be more deeply embedded in government, to capture the entire policy cycle.

A wellbeing approach would examine the causes of unemployment and seek to remedy them, whether these are skills mismatches, not enough jobs in particular locations, entrenched poverty or a failing education system. There would then be place-based targeted interventions to address those issues in a way that meets community needs. We would also take a hard look at the sort of businesses that are emerging and the quality of jobs they offer.

Figure 1. Key elements of a wellbeing approach to government. From Redefining Progress: Global lessons for an Australian approach to wellbeing.

Wellbeing demands departments and agencies become active players in service delivery, and community partners in discovering and meeting local needs — changing what matters. This goes to the heart of how public officials work, both with one another and with partners across society. It demands we become more active in our dialogues with communities, more open in our collaborations with one another, more ambitious in our development of internal capabilities and more holistic in the way that we serve and advance the needs of the Australian public.

By Warwick Smith

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Chalmers hasn’t delivered a wellbeing budget, but it’s a step in the right direction

Warwick Smith, The University of Melbourne

It was billed as Australia’s first wellbeing budget. But, five months into a new government, with so many economic fires to fight, Treasurer Jim Chalmers’ first budget was never going to be that.

Instead, he’s taken the first step: to get a sense of what we want for society and measuring how we’re doing. The budget papers refer to this as “measuring what matters”:

Indicators that measure broader quality of life factors should be considered in addition to, not instead of, traditional macroeconomic measures. When policy processes consider these outcomes, they facilitate more holistic discussions of the type of economy and society Australians want to build together.

The main commitment is to produce a “Measuring What Matters Statement” in 2023 that will lay out the government’s proposed wellbeing measures, drawing on international frameworks established over the past half-century.

A holistic wellbeing approach enables us to look at the root causes of problems, instead of simply devising policies to treat the symptoms (vital though that is in the short term).

For example, measurable improvements in mental health can have profound implications for the justice system, and mental health in turn is affected by circumstances such as poverty, domestic violence and joblessness.

Reforms based on a wellbeing approach would look to reorient the economy so that poverty, domestic violence and joblessness are reduced. This would reduce the need for police, courts, prisons, mental health support and welfare.

Treasury is thankfully moving slowly on this. I say “thankfully” because establishing an effective wellbeing approach is complex and will take time – particularly if ordinary people are to be included in the process.

Consulting diverse communities

The initial consultation on the Measuring What Matters Statement announced by Treasury is so far restricted to written submissions. Such a process will attract the usual suspects: think tanks, academics, unions, social services organisations, and so on.

Ideally, the process will be broadened, with officials going to a diverse range of communities to learn what’s important to people and places.

The Australian Capital Territory government ran consultations like this in 2019 and 2020 when developing its Wellbeing Framework. The Victorian Council of Social Services this year conducted a Listening Tour of 12 communities with similar goals in mind.

Building from this, the Victorian Health Promotion Foundation has published How to create a wellbeing economy, which explains the systemic changes to which a wellbeing budget can contribute. Closing the Gap is another relevant Australian framework that can inform Treasury’s work.

Learning from others

It is encouraging the budget papers focus on the lessons we can learn from wellbeing budgets and wellbeing economy frameworks internationally.

Rather than starting from scratch, Australia can build on what has been developed by the OECD and governments such as Scotland, New Zealand, Wales and Canada, avoiding their mistakes and emulating their successes.

One of the key lessons from these international efforts is that measurement alone does not bring about change. We also need high-level goal-setting and explicit plans for how government agencies can contribute to achieving those goals.

What makes a wellbeing budget

The Albanese government’s first budget contains many measures that may contribute to increased wellbeing.

These include resurrecting the gender budget statement (introduced by the Hawke government in 1984 but discontinued in 1997 under the Howard government), increasing paid parental leave and child care subsidies, resourcing for a referendum on an Indigenous voice to parliament and a truth-telling process, and funding for climate change mitigation and adaptation.

But a budget containing items that improve wellbeing does not make a wellbeing budget. A genuine wellbeing government approach will have the following characteristics:

• It will take a holistic approach to policy development, assessment and implementation. This means breaking down silos between government departments and between levels of government.

• It will take a long-term view. Wellbeing approaches consider not just the wellbeing of people alive today but also future generations. This means considerations of wellbeing inherently include environmental sustainability and nature conservation.

• It considers upstream drivers of wellbeing rather than treating the symptoms caused by an economy that is not serving the interests of people and planet.

But immediate action is needed too

This “upstream” approach to policy design and service delivery has the potential to improve wellbeing and reduce the need for public expenditure in many spheres.

Chalmers’ first budget is an encouraging beginning of what is hopefully a meaningful journey to reform. A new measurement framework will inform systemic change.

There is, however, much that can be done right now to improve the lives of millions of people in Australia.

At its most basic level, wellbeing requires safety, food, health care, housing, connection to community and opportunity to contribute. We know many who lack these basics. They include those surviving on JobSeeker paymments, well below the poverty line, forced to skip meals and live in their cars. They include Indigenous women lacking basic physical safety.

A wellbeing approach, looking at the drivers of these problems in an attempt to reorient society and the economy so they do not occur, must be coupled with more immediate action.

Hopefully the next budget can deliver both progress towards a more complete wellbeing framework as well as immediate action that will improve the wellbeing for those in dire need.

Warwick Smith, Research economist, The University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Beyond GDP: Chalmers’ historic moment to build wellbeing

Warwick Smith, The University of Melbourne

Australia’s new federal treasurer, Jim Chalmers, spoke regularly in opposition about a well-being budget and the need to measure more than just the traditional economic indicators.

He was even mocked for it by his predecessor, Josh Frydenberg, who joked about him “fresh from his ashram deep in the Himalayas, barefoot, robes flowing, incense burning, beads in one hand, well-being budget in the other”.

Chalmers hasn’t been deterred. The day he was formally sworn in as treasurer he reiterated of the need for better ways to measure progress:

It is really important that we measure what matters in our economy in addition to all of the traditional measures. Not instead of, but in addition to. I do want to have better ways to measure progress, and to measure the intergenerational consequences of our policies.

This commitment presents an important opportunity to address the many critical challenges Australia faces – from housing affordability, to the environment and Indigenous justice and reconciliation.

Just as importantly, it is an opportunity for neglected conversations – about what progress means, and what we want from our lives and for future generations.

The limits of measuring ‘growth’

The traditional measures of national progress to which Chalmers was referring are primarily economic indicators: growth, employment, inflation and exports.

The biggest headline measure of economic progress is gross domestic product – or the very similar gross national product (used by the US government from 1934 to 1991) – which tallies economic activity by counting the total dollar value of all of goods and services sold in a year.

GDP as a measure of progress has always had its detractors. Even economist Simon Kuznets, who laid the the groundwork for measuring GNP in the 1930s, regarded it a poor measure of national welfare.

Serious public discussion about GDP’s limits and alternatives kicked off in the late 1960s and early 1970s. In March 1968, three months before he was assassinated, US senator Robert F. Kennedy railed against “the mere accumulation of material things”:

Our gross national product counts air pollution and cigarette advertising and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl […]

Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

In other words, GDP measures some things that don’t improve our lives and doesn’t measure many things that do.

Measuring what matters

The aim of a well-being approach is to better measure the things that matter, thereby improving the focus of policy makers.

Economic outcomes are not the only basis on which Australian governments make policy decisions, but they do receive disproportionate attention. That’s in part because it is relatively easy to measure things in dollars.

Employment is obviously important, but we also need to look beyond the headline numbers at the types of jobs, their security and the pay and conditions. Also important is the quality and access to education and health care (mental and physical) as well as the quality of our environment.

Australia had a world-record 28 years continuous economic growth before the COVID-induced recession of 2020. Did this solve all our social, environmental and economic problems? Far from it. Indeed higher incomes have caused and amplified some of those problems.

Australia had a framework in 2004

Chalmers has mentioned New Zealand’s Wellbeing Budget process, introduced by the Ardern government in 2019, as an inspiration.

In fact, New Zealand’s Treasury, along with other international well-being budget approaches, were inspired by the well-being framework the Australian Treasury established in 2004.

New Zealand prime minister Jacinda Ardern
Jacinda Ardern’s government delivered New Zealand’s fourth wellbeing budget in May 2022. Hagen Hopkin/AAP

But the Australian framework was scrapped in 2016 under then treasurer Scott Morrison.

There is now an alliance of governments who have adopted well-being approaches, includeing Iceland, Finland, New Zealand, Scotland and Wales. Leading the field, however, is Bhutan, which has had Gross National Happiness as the main goal of government for decades.

The lessons from these governments is that a well-being approach must be embedded in every level of government and throughout the public service.

As Jane Davidson, who was a key Welsh government minister through four versions of Wales’ well-being framework, has said, it must be clear to everyone what it means to have well-being as a goal and how to get there.

High-level measurement and goal setting, without a clear public service reform program, will likely just lead to business as usual, embellished with the language of well-being. https://www.youtube.com/embed/1T7ZwYylO4M?wmode=transparent&start=0 Jane Davidson on the Creation of The Well-Being of Future Generations Act in Wales.

Another critical element is accountability. It’s not enough to set goals and report on them. Ministers and public servants must be held accountable for their progress (or lack thereof).

In Wales, the Well-being of Future Generations Act 2015 established a Future Generations Commissioner to assist with the reforms, but also to scrutinise and hold the government to account.

Well-being work in progress

The Ardern government delivered New Zealand’s fourth Wellbeing Budget last month.

It’s a work in progress. Each year brings incremental improvements, including new methods to integrate well-being measures into traditional cost-benefit analysis.

Like Wales and New Zealand, the Australian government must be prepared to make mistakes and learn from them.

But the biggest step will be the first.

Warwick Smith, Research economist, The University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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RN Breakfast interview on stamp duties and land taxes

States try tax reform to fix housing affordability

On RN Breakfast with Fran Kelly

I was interviewed by Max Chalmers for this segment on RN Breakfast about the transfer from stamp duties to land tax that is happening in the ACT and proposed in NSW. Despite the title of the segment, neither government has housing affordability as one of its aims in these transitions.

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Doughnut economics article turned into a podcast episode

I was asked to read my Conversation article, that was also republished by the ABC and The New Daily, for an episode of the Climactic podcast.


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Stay in the doughnut, not the hole: how to get out of the crisis with both our economy and environment intact

pxfuel, CC BY

Warwick Smith, University of Melbourne

Before the recession we were on a collision course with environmental disaster.

The recovery provides a rare opportunity to do things differently; to rebuild a better economy that can support living standards without irretrievably damaging the environment.

The closer we get to irreversible climate change, the harder that will become.


Doughnut economics, a concept principally developed by UK economist Kate Raworth, provides an intuitive way of thinking about it.

The ideas outlined in her book, subtitled Seven Ways to Think Like a 21st-Century Economist, are increasingly being used around the world, including by a new collaboration Regen Melbourne, that’s looking at ways to making Melbourne a better, more socially-just and environmentally-responsible city.

The image to keep in mind is that of a doughnut, on the inside of which is economic and social freefall.

We need a certain amount of economic and social/political development to ensure everybody can live a good, healthy life with full social and political participation.


On the outside of the doughnut is an unsustainable impact on the environment.

The sweet spot, the “safe and just space for humanity” is, of course, in the doughnut itself. Mmm… doughnuts.

Conceptually it’s pretty straightforward. Practically, it is challenging.

Economics is traditionally defined as the study of the way societies allocate scarce resources. But in the modern world the reality is that, for rich countries such as Australia, there is no overall scarcity.

The challenge is to remain within the doughnut

Such countries have homeless and hungry people, for sure. But the also have enough resources, homes and food to provide for them. That they don’t is a question of distribution rather than scarcity.

In terms of the diagram, we already use enough resources to ensure nobody need be left in the hole on the inside of the doughnut. The danger is that we use too many resources and move beyond the outer edge of the doughnut into climate and ecological breakdown.

Here’s another diagram.

For quite some time amongst economists there’s been faith in what’s called the Environmental Kuznets Curve, where increasing consumption is said to lead to increased environmental degradation up to a point.

Beyond that point, as a society becomes post-industrial, extra consumption is said to lead to less environmental degradation as people become more environmentally conscious and use their wealth to buy different things – more services (such as yoga classes) and fewer goods (such as hamburgers).


While the Environmental Kuznets Curve does indeed appear to be real, there is every indication that the global peak in environmental impact is far higher than the biosphere can withstand, which means a diagram like this:

We will need to bring the peak down, and that will be difficult for precisely the same reasons that people remain poor amid extraordinary wealth.

One is the capacity of deep-pocketed interests to influence regulators and governments to maximise profits. The other is the extent to which neoliberal economic thinking permeates social and political structures.

The modern neoliberal thinking tells us the best outcomes are achieved when markets are “free” without government “interference”.

Government attempts to tax, fine or charge for environmental damage are portrayed as interference, rather than protecting the environment.

This is easy because each individual hectare of vegetation that’s cleared doesn’t, by itself, do much damage to the environment, just as each tonne of carbon dioxide that’s released doesn’t do much damage to the climate.

It’s possible to introduce a carbon price or a carbon tax, but its easy to lobby against. Australia’s lasted two years, and governments are frightened to have another go.

The pandemic has expanded what’s possible

The pandemic has shown us that it’s possible to overcome that fear.

Environmental campaigner George Monbiot points out that for 10 years the number of people living – and dying – on Britain’s streets had climbed year by year. There wasn’t enough money to house them.

Then suddenly when the pandemic hit, and they were seen as potential carriers, the money could be found.

He says for decades government and industry had claimed that people would never give up international holidays and business flights. When humanity’s future was seen to be on the line, they did.

It now feels possible to embrace a shift to what Monbiot calls “private sufficiency and public luxury”.

Double Down News.

This is a challenge not only to economics but also to individual economists.

For better or worse, our discipline has a lot of power in the modern world and our views carry disproportionate weight.

We need the best of our economic minds helping us to build frameworks that will keep us in the doughnut. The future of our species depends on it.The Conversation

Warwick Smith, Research economist, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article. The article was also republished by ABC News.

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What I Never Understood Until I Became A Househusband – 10daily

By Warwick Smith

Another article published at 10daily last year that I want to keep a record of in case the site gets taken down. (Note: I didn’t choose to use the word “househusband” in the title, that was the editor). Update: the 10daily site has since been taken down so the above link is broken.

My wife and I have recently switched back and forth in our roles at work and home, and the lessons I’ve learnt have been profound.

Only about a month into the new arrangement of me as lead parent and my wife, Cass, as breadwinner, we found ourselves sitting at the kitchen table on a Saturday morning. I had a list of things that needed doing around the house, shopping and various kids activities, and Cass had the newspaper and a cup of coffee just wanting to chill out and relax.

This was a total reversal from only a month earlier.

Of course, we knew that our roles would affect our behaviour and the way we related, but the extent that our role reversal resulted in a behavioural and personality reversal was shocking, even for a couple who have been fairly equitable for most of our relationship.

Profound lessons
The lessons I’ve learnt have been profound. (Image: Getty)

Cass has historically been a bit of a cranky morning person, balancing logistics of her day and self-care with getting kids off to school, while I tend to be pretty cheerful in the morning.

This flipped when our roles flipped. I was always amazed by how much time Cass spent texting in the evenings — and then suddenly I was doing it to organise all kinds of things to do with school and kids’ activities. There are too many other similar reversals to possibly list them all here.

The biggest realisation for me has been about the ‘mental load’ of running a household. I understood this in theory but, like becoming a parent, it’s not something you can fully understand until you do it.

mental load
The biggest realisation for me has been  about the ‘mental load’ of running a household. (Image: Supplied)

Keeping track of what’s going on and what needs to happen in a complex household (i.e. one with kids or other dependents) requires substantial mental time and energy. This mental load falls disproportionately on women, even when both partners are working equally, often simply as a hangover from when women take leave from work in the early years of child rearing or simply due to gender role expectations.

Even during periods when Cass and I were sharing the parenting 50/50 we were not sharing the mental load. She knew it but I only kind of knew it and, I have to painfully confess, had partly dismissed it as gender related — she just cared more about some household things than I did.

What’s been equally striking is that, as I approached my return to work, I shed the mental load as my brain started to return to work mode. Things at home fell apart a bit; we didn’t have enough food in the house for school lunches, the bald car tyres haven’t been changed even though they were dangerously bald, a bike got left at a repair shop for a week after it was ready to pick up — the list goes on.

shed mental load
As I approached my return to work, I shed the mental load, and things at home fell apart a bit. (Image: Supplied)

It may be tempting to draw on another broadly accepted gender stereotype; that women are better at multitasking than men. The multitasking skill difference may be real, I don’t know, but, if it is I reckon there’s a fair chance it’s just to do with practice. So many employed women have to do the balancing of cognitive load for work and home and, as a result, they become better at it.

Perhaps with practice I’ll become good at it too, but I have absolutely no doubt that there is only so much cognitive load we can carry and that carrying a job-related mental load and a household mental load is tiring and isn’t without costs.

Maybe multitasking well has everything to do with practice. (Image: Getty)

I’ve returned to work, but only three days per week. The plan now is that we both work three days per week, once again dividing the parenting and housekeeping right down the middle. The big challenge is going to be how to divide the mental load right down the middle.

At least now I genuinely understand what that challenge involves, which I’m not sure I ever would have if I hadn’t had this time of being a full-time househusband.

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To Fight The IMF’s Dire Prediction We Need More Government Debt – 10 daily

By Warwick Smith

This article was first published on April 15 2020 at 10daily, which has since shut down. I’m reproducing it here now partly to keep a record in case the web site ceases to exist. Update: the 10daily site has indeed been taken down so the above link is broken.

Yesterday, the International Monetary Fund (IMF) released the latest World Economic Outlook, in which it predicted Australia’s economy would shrink 6.7 percent this year.

This would be the biggest single-year fall since 1930 at the height of the Great Depression. They expect unemployment to reach 7.6 percent this year and climb to 8.9 percent next year. Despite noting Australia’s very large government spending program, the IMF suggests that greater fiscal stimulus may be needed to avoid even worse outcomes.

Meanwhile, Australia’s major political parties are both stuck in misguided and outdated attitudes towards government debt and deficits. During last week’s parliamentary debate about the $130 billion JobKeeper legislation, Anthony Albanese said, “We are headed for a trillion-dollar debt… It is a bill that will saddle a generation.”

If this dangerous thinking is allowed to dominate both sides of the narrow political divide in Australia over the next few years, then we will see unnecessary hardship and further loss of jobs on the Australian people.

This misguided thinking comes from the notion that the federal government is like a nationwide household and that if we spend too much now, we, as a nation, will have to tighten our belts in the future to pay for it. This may make intuitive sense but much of the true nature of money is not intuitive.

Paying attention only to money and debt often causes people (including economists) to lose sight of the real economy. The real economy is the production and distribution of goods and services. Our material standard of living at any particular time depends almost exclusively on the goods and services we are able to produce (and purchase from overseas) at that time. Is it possible for future generations to send goods and services back in time to pay for the current COVID response expenditure? Of course not, that’s a ludicrous suggestion.

Okay, so if we focus on the real economy and forget about the money for a minute, what are the real future consequences of spending now to support businesses and households? The fewer businesses go broke now, the quicker the recovery and the more rapidly we can get back towards full employment. The closer we get to full employment (and the full use of our infrastructure, factories, equipment, etc) the more goods and services we can produce and the higher the material standard of living we can have.

So what about the trillion-dollar debt then?

We have a very clear historical precedent we can use to shed light on the impact of debt and on the choices that lie before us. The highest level of government debt Australia has ever had was accumulated during World War II.

debt and deficit history(Image: Ashley Owen, Stanford Brown)

This debt, 120 percent of GDP, would be equivalent to a debt today of well over two trillion dollars. If Anthony Albanese and Josh Frydenberg are right about the current debt burden, then post-war generations must have really struggled under that debt burden, right?

As it turns out, the opposite is true. The 25 years following WWII are often referred to as the post-war boom. We had strong economic growth, high wage growth, rapidly increasing material standards of living and falling inequality.

During this period governments of both political persuasions ran near constant modest deficits and the level of government debt to GDP fell sharply. This counter-intuitive miracle occurred because governments weren’t focussed on paying off the debt but were instead focussed on productivity and full employment.

Policy thinkers in the Curtin government, trained in the new economics developed by John Maynard Keynes, had seen massive unemployment during the Great Depression and then zero unemployment during the war. They figured that if the government could bring about full employment during the war then they could bring about full employment during peace time. They laid out this plan in 1945 in a remarkable white paper, Full Employment in Australia, that’s still very much worth reading today.

unemployment history
Australia’s unemployment rate, 1901-2001. (Image: Australian Treasury)

Arguably the 20th century’s most influential economist, Keynes said, “Look after the unemployment and the budget will look after itself”. In the 25 years following WWII, unemployment in Australia averaged two percent and, as noted above, government debt to GDP fell sharply, despite governments continuing to run deficits.

The same could be true in the recovery from the COVID-induced recession — if only our politicians could understand it.

Falling debt to GDP while governments run deficits could occur because the combination of economic growth and inflation saw the economy outgrow the debt. The debt was never really paid off, but the Australian economy was fully employed and was producing enough goods and services to provide Australians with an increasingly higher standard of living.

As I’ve discussed elsewhere, Menzies very nearly lost the 1961 election because unemployment was creeping up towards three percent as a result of reduced government expenditure. Menzies, chastised by the result, immediately adopted Labor’s policy of intentionally running a deficit in order to reduce unemployment — and it worked.

The dangers of austerity

If we adopt the attitude currently dominant in both Labor and Coalition party rooms that this debt is a burden that must be paid off, we will have the opposite outcome. This could entail implementing so-called austerity policies, lifting taxes and/or cutting government expenditure in an effort to pay off the debt. Both increasing taxes and cutting government expenditure remove money from the non-government sector, right when they need it for the economic recovery.

Cutting government services, including health, mental health, education, research, environmental protection and more in order to pay off government debt will inevitably result in higher unemployment, worse health outcomes and worse economic outcomes. We know, both from sound economic theory and from the lessons of history, that we don’t need to focus on paying off the debt. This means, if we do suffer as a result of government debt repayments, that we are doing so as a political and ideological choice, not out of necessity.

Instead, we should focus on full employment and on the real economy and let the budget take care of itself.

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The coronavirus response calls into question the future of super


Brendel/Unsplash, CC BY-NC

Warwick Smith, University of Melbourne

This article was first published in The Conversation.

Understandably, given we are in a crisis, the government has baulked at including superannuation contributions in the A$140 billion worth of $1,500 per fortnight wage top-ups it will be directing to six million Australians.

As the JobKeeper fact sheet puts it:

It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.

Source: Australian Tax Office

This is in the middle of a treasury led Retirement Income Review that is considering, among other things, whether the current 9.5% of salary contribution should be increased to 10% and then to 10.5% and then in a series of annual steps to 12% by 2025.

In considering the idea (it is actually leglislated – if the government decided not to go ahead it would need to unleglislate it) it helps to go back to basiscs.

The blinding power of money

The trouble with money is most people are so busy looking at it they are blind to what’s going on in the real economy – by which I mean the production and distribution of goods and services.

Our current material standard of living depends almost entirely on our current ability to produce goods and services (assuming for a moment imports are funded by exports).

Similarly, our standard of living in 2050 will depend almost entirely on our capacity to produce goods at that time. This means it has little to do with how much money is in our superannuation accounts.

Part of the justification for superannuation is to get us more resources in retirement, and it will for those who have big super balances, but it won’t do much to change the total amount of resources available at the time.

The limits to saving

Often it’s put another way. We are told baby boomers need to fund themselves in retirement, instead of relying on pensions paid for by those who are still in the workforce.

But imagine a perfect scenario where every retired baby boomer has $1 million in super, freeing those still working from the tax burden of funding the pension.

When the boomers are using their super to buy services and goods, who are they going to take them away from?

You guessed it, those still working.

They’ll be giving up resources to support the retirement of boomers, whoever supplies the cash.

In the main, saving can’t create resources

If there was no superannuation and the government instead taxed current workers in order to fund retiree consumption, the real cost to workers would be the same. That cost is the provision of goods and services to retired people instead of workers.

Individuals can indeed save for the future by foregoing some goods and services today in order to have more of them later. Financial planners refer to it as consumption smoothing.

But an entire society can’t save for the future through consumption smoothing.

If Australia as a whole consumes fewer goods and services in one year, it is likely to reduce rather than increase its future wealth because it is fully utilised labour and capital that drives investment and productivity.

That’s what lies at the core of misunderstandings about the superannuation system. Foreign investment aside, it can’t allow an entire society to save for the future to support itself in retirement.

It can skew the distribution of resources in future years, away from those of working age and those with low super balances towards those with (tax concession subsidised) high super balances.

Boosting productivity can help

If our goal is an adequate and sustainable income in retirement for all Australians, our main priority ought to be ensuring that those remaining in the workforce are productive enough to support themselves, their children, those without work and those who have retired.

In other words, if you’re worried about the economic impact of our ageing population on our material standard of living (and there are reasons not to be worried) you would want our focus to be on productivity, rather than retirement savings.

To the extent retirement savings are used for productivity enhancing investment, that’s good. The reality is much of our retirement savings are funnelled relatively unthinkingly into an already bloated financial system where they expand speculative bubbles.

Elsewhere I’ve referred to it as Australia’s first compulsory Ponzi scheme.

Like most important economic questions, the best retirement income system is not, at its core, solely an economic question, it is also a moral and political question about distribution and inequality.

So, with that in mind, here’s what my personal moral (plus economic) analysis tells me would be the best retirement income system.

We could give the money back, slowly

The best way would be to get rid of compulsory superannuation, give all the money back to account holders (slowly to avoid too much inflation), mandate a 9.5% pay rise in its place and redirect the tens of billions of dollars we currently spend on superannuation tax concessions toward rent assistance, a higher Newstart allowance and a higher pension.

With retired renters better looked after, a moderate (say 20%) increase in the pension, and continued indexation of the pension to wages, no retired Australian would be living in poverty.

It’d be sustainable so long as we ensured sufficient worker productivity, primarily through full employment, appropriate infrastructure investment and well-supported education, training and research.

There, problem solved.The Conversation

Warwick Smith, Research economist, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Interviewed for ABC Podcast ‘The Signal’. How the dole bludger was born.

Screenshot_2019-11-01 The Signal
I was interviewed about the history of unemployment in Australia and, more specifically, the history of how Australia has treated unemployed workers.

We haven’t always been so punitive. For about 25 years after WW2 unemployment was seen as a collective problem, not an individual failing as it is now painted.

ABC Podcast: The Signal. How the dole bludger was born.

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