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Australia’s fertility rate has reached a record low. What might that mean for the economy?

<div class="theconversation-article-body"><a href="https://theconversation.com/profiles/jonathan-boymal-392960">Jonathan Boymal</a>, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a>; <a href="https://theconversation.com/profiles/ashton-de-silva-3066">Ashton De Silva</a>, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a>, and <a href="https://theconversation.com/profiles/sarah-sinclair-385470">Sarah Sinclair</a>, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a> Australia’s fertility rate has fallen to a new <a href="https://www.abs.gov.au/statistics/people/population/births-australia/latest-release">record low</a> of 1.5 babies per woman. That’s well below the “<a href="https://pubmed.ncbi.nlm.nih.gov/7834459/#:%7E:text=PIP%3A%20Replacement%20level%20fertility%20is,of%202.1%20children%20per%20woman.">replacement rate</a>” of 2.1 needed to sustain a country’s population. On face value, it might not seem like a big deal. But we can’t afford to ignore this issue. The health of an economy is deeply intertwined with the size and structure of its population. Australians simply aren’t having as many babies as they used to, raising some serious questions about how we can maintain our country’s workforce, sustain economic growth and fund important services. So what’s going on with fertility rates here and around the world, and what might it mean for the future of our economy? What can we do about it? <h2>Are lower birth rates always a problem?</h2> Falling fertility rates can actually have some <a href="https://www.rand.org/content/dam/rand/pubs/monograph_reports/2007/MR1274.pdf">short-term benefits</a>. Having fewer dependent young people in an economy can increase workforce participation, as well as boost savings and wealth. Smaller populations can also benefit from <a href="https://www.sciencedirect.com/science/article/abs/pii/S0927537112000620.">increased investment</a> per person in education and health. But the picture gets more complex in the long term, and less rosy. An ageing population can strain pensions, health care and social services. This can hinder economic growth, unless it’s <a href="https://pubmed.ncbi.nlm.nih.gov/21302431/">offset by increased productivity</a>. Other scholars have <a href="https://www.gsb.stanford.edu/faculty-research/publications/end-economic-growth-unintended-consequences-declining-population">warned</a> that a falling population could stifle innovation, with fewer young people meaning fewer breakthrough ideas. <h2>A global phenomenon</h2> The trend towards women having fewer children is not unique to Australia. The global fertility rate has dropped over the past couple of decades, from 2.7 babies per woman in 2000 to <a href="https://www.macrotrends.net/global-metrics/countries/WLD/world/fertility-rate">2.4 in 2023</a>. However, the distribution is not evenly spread. In 2021, 29% of the world’s babies were born in sub-Saharan Africa. This is projected to <a href="https://www.healthdata.org/news-events/newsroom/news-releases/lancet-dramatic-declines-global-fertility-rates-set-transform">rise to 54% by 2100</a>. There’s also a <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/psp.2720">regional-urban divide</a>. Childbearing is often delayed in urban areas and late fertility is more common in cities. In Australia, we see <a href="https://www.abs.gov.au/statistics/people/population/births-australia/latest-release#data-downloads">higher fertility rates</a> in inner and outer regional areas than in metro areas. This could be because of more affordable housing and a better work-life balance. But it raises questions about whether people are moving out of cities to start families, or if something intrinsic about living in the regions promotes higher birth rates. <iframe id="U1wEx" class="tc-infographic-datawrapper" style="border: 0;" src="https://datawrapper.dwcdn.net/U1wEx/1/" width="100%" height="400px" frameborder="0" scrolling="no"></iframe> <h2>Fewer workers, more pressure on services</h2> Changes to the makeup of a population can be just as important as changes to its size. With fewer babies being born and increased life expectancy, the proportion of older Australians who have left the workforce will keep rising. One way of tracking this is with a metric called the old-age dependency ratio – the number of people aged 65 and over per 100 working-age individuals. In Australia, this ratio is currently about 27%. But according to the latest <a href="https://treasury.gov.au/publication/2023-intergenerational-report">Intergenerational Report</a>, it’s expected to rise to 38% by 2063. An ageing population means greater demand for medical services and aged care. As the working-age population shrinks, the tax base that funds these services will also decline. Unless this is offset by technological advances or policy innovations, it can mean higher taxes, longer working lives, or the government providing fewer public services in general. <h2>What about housing?</h2> It’s tempting to think a falling birth rate might be good news for Australia’s stubborn housing crisis. The issues are linked – rising real estate prices have made it difficult for many young people to afford homes, with a significant number of people in their 20s <a href="https://pursuit.unimelb.edu.au/articles/more-australian-adult-children-are-living-with-their-parents-longer">still living with their parents</a>. This can mean delaying starting a family and reducing the number of children they have. At the same time, if fertility rates stay low, demand for large family homes may decrease, impacting one of Australia’s most significant economic sectors and sources of household wealth. <h2>Can governments turn the tide?</h2> Governments worldwide, including Australia, have long experimented with policies that encourage families to have more children. Examples include paid parental leave, childcare subsidies and financial incentives, such as Australia’s “<a href="https://theconversation.com/what-the-baby-bonus-boost-looks-like-across-ten-years-81563">baby bonus</a>”. Many of these efforts have had only limited success. One reason is the rising average age at which women have their first child. In many developed countries, including Australia, the average age for first-time mothers has surpassed <a href="https://www.aihw.gov.au/reports/mothers-babies/australias-mothers-babies/contents/overview-and-demographics/maternal-age">30</a>. As women delay childbirth, they become less likely to have multiple children, further contributing to declining birth rates. Encouraging women to start a family earlier could be one policy lever, but it must be balanced with women’s growing workforce participation and career goals. Research has previously highlighted the factors influencing fertility decisions, including levels of paternal involvement and workplace flexibility. Countries that offer part-time work or maternity leave without career penalties have seen a <a href="https://faculty.wcas.northwestern.edu/mdo738/research/Doepke_Hannusch_Kindermann_Tertilt_Handbook_23.pdf">stabilisation or slight increases</a> in fertility rates. <h2>The way forward</h2> Historically, one of the ways Australia has countered its low birth rate is through immigration. Bringing in a lot of people – especially skilled people of working age – can help offset the effects of a low fertility rate. However, relying on immigration alone is not a long-term solution. The global fertility slump means that the pool of young, <a href="https://www.imf.org/en/Publications/fandd/issues/2020/03/can-immigration-solve-the-demographic-dilemma-peri">educated workers from other countries</a> is shrinking, too. This makes it harder for Australia to attract the talent it needs to sustain economic growth. Australia’s record-low fertility rate presents both challenges and opportunities. On one hand, the shrinking number of young people will place a strain on public services, innovation and the labour market. On the other hand, advances in technology, particularly in artificial intelligence and robotics, may help ease the <a href="https://www.sciencedirect.com/science/article/abs/pii/S0164070420302020">challenges of an ageing population</a>. That’s the optimistic scenario. AI and other tech-driven productivity gains could reduce the need for large workforces. And robotics could assist in aged care, lessening the impact of this demographic shift.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/241577/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/jonathan-boymal-392960">Jonathan Boymal</a>, Associate Professor of Economics, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a>; <a href="https://theconversation.com/profiles/ashton-de-silva-3066">Ashton De Silva</a>, Professor of Economics, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a>, and <a href="https://theconversation.com/profiles/sarah-sinclair-385470">Sarah Sinclair</a>, Senior Lecturer in Economics, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a> Image credits: Shutterstock This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/australias-fertility-rate-has-reached-a-record-low-what-might-that-mean-for-the-economy-241577">original article</a>. </div>

Money & Banking

Huge drop in international economy airfares revealed

Airfares to some of the most popular tourist destinations have dropped over the past year according to new data released by Flight Centre. The Australian agency revealed that average price of an international economy airfare sold in Australia has dropped by 12.8 per cent. The top three destinations with the most significant drop in prices include Indonesia at 21.01 per cent, New Zealand with 13.03 per cent and the US at 12.45 per cent. The UK has seen a decrease of 8.05 per cent and popular European destinations like France, Germany and Spain down 7.91 per cent, 6.9 per cent and 6.03 per cent, respectively. The cost of flights to Thailand has also gone down by 3.84 per cent. The figures are based on a comparison of the cost of flights between January and March last year and the same period this year. “In fantastic news for travellers the latest data shows the average cost of an international airfare is down almost 13 per cent when compared to this time last year,” Flight Centre global managing director Andrew Stark told news.com.au. “What that means in real figures is that an economy return airfare between Sydney and Bali would’ve cost on average $1010 this time last year, now it will now set you back under $800.” He attributed these changes to the increased competition and capacity. “It’s vital that there is active competition between the airlines and the more we see of it, the more likely we are to see cheaper airfares, more destination options and a better experience for consumers.” Qantas has also recently announced that they will be increasing the number of flights to Singapore and India, with flights from Sydney to Singapore set to increase from 14 to 17 return flights a week, and Sydney to Bengaluru from five a week to seven. Image: Shutterstock

Money & Banking

Heated argument between economy passengers reignites plane etiquette debate

A 12-second clip of two passengers arguing on a plane has reignited the age-old debate of whether it is acceptable to recline your seat on a plane. The viral video which was originally posted on TikTok and then re-shared on X, has racked up over 8 million views since Thursday. In the video, a frustrated woman was calling out another female passenger for pushing her seat the entire flight, right after they landed. “The whole trip she pushed my seat,” the woman said to a male passenger seated next to the female passenger accused of kicking her seat. “You seen it. You know she did.” “I’m allowed to put my seat back," she yelled repeatedly. Ian Miles Cheong, the user who posted the video on X, defended the woman saying: “She’s allowed to put her seat back. You don’t get to kick it repeatedly just because you want more space.” A few were on the woman's side and praised her for standing up for herself. “You are allowed! Period! You want space in front of you instead of pushing the seat, buy a seat with extra space or get your a** to business class. Reclining was put there for a reason,” one person wrote. “She was patient enough to wait till flight landed," they added. “If the seat is reclinable, recline it,” another commented. "What she’s saying is right. The woman has a right to put her seat back without someone kicking it," a third agreed. <blockquote class="twitter-tweet"> She’s allowed to put her seat back. You don’t get to kick it repeatedly just because you want more space. <a href="https://t.co/WELD7Qh4Re">pic.twitter.com/WELD7Qh4Re</a> — Ian Miles Cheong (@stillgray) <a href="https://twitter.com/stillgray/status/1719881310351863952?ref_src=twsrc%5Etfw">November 2, 2023</a></blockquote> However, others claimed that there was an unwritten rule that you shouldn't recline your seat, especially on a short-haul flight, adding that the recline feature should be scrapped from airplanes. “Putting your seat back in coach is an unspoken thing most people don’t do. It’s really the airline’s fault because they’ve made coach so cramped and tight that putting the seat back shouldn’t even be an option,” one commented. “Airline seats simply shouldn’t be able to recline. It intrudes on the already very little space a person has on the plane for the person behind them,” another added. “Really it’s the airline’s fault for cramming so many people in such a small space. They don’t call it cattle class for nothing,” a third wrote. One user understood both sides of the argument, and blamed the airlines for making the seats so cramped. "It can be annoying sometimes to be behind someone with their seat all the way, but if the airlines didn't want to allow that, it wouldn't happen," they wrote. "You don't kick the seat like a baby. Blame the airline, not the person doing what the airline says is fine." Images: Twitter

Travel Trouble

How a secret plan 50 years ago changed Australia’s economy forever, in just one night

<a href="https://theconversation.com/profiles/alex-millmow-4462">Alex Millmow</a>, <a href="https://theconversation.com/institutions/federation-university-australia-780">Federation University Australia</a> At a time when governments are timid, keener to announce <a href="https://www.pc.gov.au/inquiries/completed/productivity/report">reviews</a> than decisions, it’s refreshing to remember what happened 50 years ago today – on July 18 1973. Inflation had surged to <a href="https://www.datawrapper.de/_/vu9by/">14%</a>. Australia’s biggest customer, the United Kingdom, had joined the <a href="http://news.bbc.co.uk/onthisday/hi/dates/stories/january/1/newsid_2459000/2459167.stm">European Economic Community</a>, agreeing to buy products from it rather than Australia. And the newly formed Organisation of Arab Petroleum Exporting Countries had <a href="https://advisor.visualcapitalist.com/historical-oil-prices/">doubled</a> the price of oil. The tariffs imposed on imported goods to protect Australian manufacturers from competition were extraordinarily high. For clothing, they reached <a href="https://www.pc.gov.au/inquiries/completed/textile-clothing-footwear-1997/59tcf2.pdf">55%</a>; for motor vehicles, <a href="https://ro.uow.edu.au/cgi/viewcontent.cgi?article=1077&context=commwkpapers">45%</a>. Then, with absolutely <a href="http://andrewleigh.org/pdf/Trade%20liberalisation%20and%20the%20ALP.pdf">no</a> public indication he had been considering anything as drastic, at 7pm on Wednesday July 18, the recently elected prime minister Gough Whitlam made an <a href="https://pmtranscripts.pmc.gov.au/sites/default/files/original/00002971_0.pdf">announcement</a>. <h2>Every tariff cut by one quarter overnight</h2> From midnight, all tariffs would be cut by 25%. As Whitlam put it: “each tariff will be reduced by one quarter of what it is now”. <figure class="align-right "><figcaption></figcaption></figure> If Australian businesses (and the Australian public) were caught by surprise, it was because Whitlam had planned the whole thing in secret. He had given a six-person committee just three weeks to work out the details. Although the committee was chaired by the head of the Tariff Board, Alf Rattigan, and included an official from Whitlam’s own department, the department of industry and the department of trade, it met in an obscure location in Canberra’s civic centre rather than in public service offices, where the project might be discovered. Not included in the committee was a representative of the treasury, which its then deputy head John Stone said “<a href="https://cdn.theconversation.com/static_files/files/2744/Stone__The_Inside_Story_of_Gough%E2%80%99s_Tariff_Cut__in_The_Australian__18_July_2003..pdf">knew nothing</a>” about what was unfolding. But driving the work of the committee were two academic outsiders – Fred Gruen, an economics professor at the Australian National University and adviser to Whitlam, and Brian Brogan, an economics lecturer at Monash University who was advising the trade minister, Jim Cairns. <h2>Outsiders, not treasury insiders</h2> As economists rather than bureaucrats, Gruen and Brogan were able to see benefits where others saw entrenched interests. Going to the tariff board and asking for extra tariffs, whenever it looked as if your prices might be undercut by imports, had become a reflex action for Australian businesses. In the words of <a href="https://esavic.org.au/385/images/2013_GaryBanks.pdf">Gary Banks</a> – later to become head of the successor to the tariff board, the Productivity Commission: “it was not a shameful thing for a conga line of industrialists to be seen wending its way to Canberra”. Tariffs were good for business owners, although bad for their customers, who had to pay much higher prices and often got <a href="https://www.afr.com/opinion/bill-scales-the-rise-and-fall-of-the-australian-car-manufacturing-industry-20171018-gz3ky4">worse goods</a>. They were also good for government – bringing in tax revenue. Whitlam was more interested in bringing down inflation. His announcement said increased competition would "have a salutary effect upon those who have taken advantage of shortages by unjustified price increases which have exploited the public". Any firm seriously hurt by the extra imports could apply to a newly established tribunal for assistance, but the tribunal "should not provide relief as a matter of course – that is, simply because the question of relief had been referred to it". So Whitlam offered “rationalisation assistance” to encourage firms to refocus their operations, and “compensation for closure” where that couldn’t be done and production had to cease. For displaced workers, the 7pm announcement offered anyone who lost their job retraining, as well as "a weekly amount equal to his [sic] average wage in the previous six months until he obtains or is found suitable alternative employment." Over the next seven years, manufacturing employment fell by <a href="https://www.bitre.gov.au/sites/default/files/report_136_CHAPTER_6_WEB_FA.pdf">80,000</a>, but few of those job losses were immediate. Fifteen months after the 25% tariff cut, fewer than <a href="https://www.jstor.org/stable/20634782?seq=10">6,000</a> people had claimed the wage replacement offered on the night of the announcement. When Whitlam went to the polls a year after the cut in the double dissolution election of May 1974, 122 university economists signed an <a href="https://pmtranscripts.pmc.gov.au/release/transcript-3267">open letter</a> of support. The letter said the general thrust of the government’s policy responses had been in the best interests of the nation as a whole, and added, "more importantly, we seriously doubt that the previous government would have had the wisdom or the courage to undertake it. It had certainly given no indication of moving in that direction while it was in power, even though the need for such policies had become obvious". In its later days in office, the Whitlam government was roundly criticised for its irresponsible public spending. Ironically, in its approach to tariffs in the 1970s, it had taken the first steps in a neoliberal direction that characterised western governments of the 1980s. By acting boldly after decades of inaction, Whitlam showed what a government could do. It was a lesson his Labor successor Bob Hawke took to heart a decade later, when he floated the dollar, revamped Australia’s tax system and put in place a series of further cuts that reduced tariffs to near zero. It’s something we see less of today.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/209378/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/alex-millmow-4462">Alex Millmow</a>, Senior Fellow, <a href="https://theconversation.com/institutions/federation-university-australia-780">Federation University Australia</a> Image credits: Getty Images This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/how-a-secret-plan-50-years-ago-changed-australias-economy-forever-in-just-one-night-209378">original article</a>.

Money & Banking

How zinc batteries could power the sustainable economy

What might it take to get zinc batteries offsetting some of the demand on lithium-ion? According to a <a href="https://dx.doi.org/10.26599/NRE.2022.9120039" target="_blank" rel="noreferrer noopener">review</a> in Nano Research Energy, a few avenues of research look set to make rechargeable zinc batteries efficient and long-lasting enough to be competitive. If you want to store electricity, lithium-ion batteries are <a href="https://cosmosmagazine.com/science/physics/long-live-the-power-of-lithium/" target="_blank" rel="noreferrer noopener">generally the most powerful</a> and <a href="https://cosmosmagazine.com/technology/precious-metal/" target="_blank" rel="noreferrer noopener">energy dense option</a>. But lithium isn’t a <a href="https://cosmosmagazine.com/technology/materials/lithium-ion-battery-supply-chain-australia/" target="_blank" rel="noreferrer noopener">super-abundant metal</a>, and it’s very reactive: lithium-ion batteries need <a href="https://cosmosmagazine.com/technology/battery-fire-lithium-ion/" target="_blank" rel="noreferrer noopener">elaborate safety systems</a> to lower the risk of fires. As battery demand soars, to shore up the <a href="https://cosmosmagazine.com/technology/energy-crisis-escape-transition/" target="_blank" rel="noreferrer noopener">transition to renewable energy</a>, researchers are looking for alternatives to lithium. “Zinc has a strong battery track record, having been used as anode material as early as 1799!” says co-author Dapeng Liu, a battery researcher with the Key Laboratory of Bio-inspired Smart Interfacial Science and Technology at Beihang University, China. “Zinc-based battery technology already accounts for one-third of the world battery market.” Zinc can be used in a range of different types of battery – including <a href="https://cosmosmagazine.com/technology/new-charge-for-old-battery/" target="_blank" rel="noreferrer noopener">zinc-air batteries</a>, which are currently available as small disposables, rechargeable <a href="https://cosmosmagazine.com/technology/flow-battery-china/" target="_blank" rel="noreferrer noopener">flow batteries</a>, or rechargeable non-flow zinc-bromide batteries. Zinc-based batteries are typically cheaper than lithium-ion, and carry a much lower fire risk. But while their performance has much improved over the past decade, they’re still not good for commercial rechargeable batteries yet. They’re not very energy-dense, and they have shorter life cycles. According to the researchers, there are a few areas of chemistry that should be focused on to improve this. First, say the reviewers, the anodes and cathodes of zinc batteries need to be developed so that they don’t deplete as much over time. They think that changing the surface of the anodes (interface modification), and alloying the zinc with other materials and additives, will yield the best results. Next, better <a href="https://cosmosmagazine.com/science/next-big-thing-catalysts-can-change-the-world/" target="_blank" rel="noreferrer noopener">catalysts</a> are needed to speed up zinc-air batteries’ reactions, making them more efficient. Finally, the researchers suggest that new electrolyte mixtures can improve battery performance. “Rechargeable zinc-based batteries have a long way to go before large-scale application in the mobile, power, and other electronic equipment markets,” conclude the researchers in their paper. A zinc-bromide battery factory opened in Australia in late September. Operated by <a href="https://gelion.com/gelion-launches-australian-battery-manufacturing-facility/" target="_blank" rel="noreferrer noopener">Gelion</a>, a renewable energy company that spun out from research at the University of Sydney, the facility is currently capable of making two megawatt hours of batteries per year.  <img id="cosmos-post-tracker" style="opacity: 0; height: 1px!important; width: 1px!important; border: 0!important; position: absolute!important; z-index: -1!important;" src="https://syndication.cosmosmagazine.com/?id=227531&title=How+zinc+batteries+could+power+the+sustainable+economy" width="1" height="1" data-spai-target="src" data-spai-orig="" data-spai-exclude="nocdn" />  <div id="contributors"> <a href="https://cosmosmagazine.com/technology/zinc-batteries-improvements-needed/" target="_blank" rel="noopener">This article</a> was originally published on Cosmos Magazine and was written by Ellen Phiddian. Image: Getty Images </div>

Technology

A heated steering wheel for $20 a month? What’s driving the subscriptions economy

From gym memberships to music and movies, to razors, toilet paper, meal kits and clothes, there’s seemingly no place the subscription economy can’t go. Having conquered the software market – where it gets its own acronym, SaaS (Software as a Service) – the subscription model is now moving into hardware. Car makers are among the first cabs off the rank, using software to turn on and off optional extras. German auto maker BMW is offering “<a href="https://www.theverge.com/2022/7/12/23204950/bmw-subscriptions-microtransactions-heated-seats-feature" target="_blank" rel="noopener">in-car microtransactions</a>” to access options for car buyers in Britain, Korea, Germany, New Zealand and South Africa. A heated steering wheel, for example, has a monthly cost of NZ$20 in New Zealand, and £10 in the UK. Other markets <a href="https://www.drive.com.au/news/bmw-australia-monthly-subscriptions-detailed/" target="_blank" rel="noopener">including Australia</a> will soon follow. In the UK, seven of 13 “digital services” – from heated seats to automatic high beam and driving assistance – are now available in subscription form. “Welcome to microtransaction hell” is how <a href="https://www.pcgamer.com/welcome-to-microtransaction-hell-buy-a-bmw-pay-monthly-for-the-cars-features/" target="_blank" rel="noopener">one headline</a> put it. But that’s probably overselling the onset of a corporate dystopia where “you will own nothing”. BMW’s motives are pretty straightforward – as is most of what’s driving the subscription economy. What is the subscription model? The subscription model means paying a fee for periodical access to a service or product. Until a decade or so ago, it was largely confined to a few select industries, such as the delivery of milk, newspapers and magazines. <figure class="align-center "><img src="https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" alt="From milk and magazines, subscription services have proliferated with digital technology." /><figcaption>From milk and magazines, subscription services have proliferated with digital technology. Shutterstock</figcaption></figure> Other business models had similarities – such as rental businesses – but the point of the subscription model was different. It was not about meeting a demand for a service someone only wanted to use temporarily or could not afford to own outright. It was about locking in a continuing relationship, to maximise “customer lifetime value”. As <a href="https://www.investopedia.com/ask/answers/042715/how-do-subscription-business-models-work.asp" target="_blank" rel="noopener">Investopedia puts it</a>, the subscription model’s focus is on customer retention over customer acquisition: <blockquote> In essence, subscription business models focus on the way revenue is made so that a single customer pays multiple payments for prolonged access to a good or service instead of a large upfront one-time price. </blockquote> This in large part explains why subscription services are now being adopted in markets outside their more obvious fit for things such as streaming news and entertainment. In a broad sense, consumers can now be divided into two groups. One group comprises the “transactional shopper”, who interacts with the vendor once or twice, then disappears. The other group comprises customers whose connection and “investment” in the brand is maintained through their subscriptions. <figure class="align-center "><img src="https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" alt="The subscriptions model emphasises customer retention over customer acquisition." /><figcaption>The subscriptions model emphasises customer retention over customer acquisition. Shutterstock</figcaption></figure> E-commerce and access Part of the growth in the subscription economy has come from companies riding the e-commerce wave, delivering goods such as meal kits, wine, coffee, baby supplies, pet food, cleaning products, razors and toilet paper. Consultant firm McKinsey has estimated the subscription e-commerce market is <a href="https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers" target="_blank" rel="noopener">doubling in value</a> every year – though that was before the pandemic. It could be well be more now. The other part of the market is represented by BMW’s approach, offering extra features to customers that can only be accessed for a fee. In some cases this may involve standard “upsell” techniques. For example, when you buy a new Peloton exercise bike you’ll be enticed with <a href="https://www.onepeloton.com.au/membership" target="_blank" rel="noopener">subscription offers</a>, such as virtual classes and “customised” training programs, to “reach your goals”. Or increasingly, as with BMW’s heated seats and steering wheels, it can be done with software turning actual bits of hardware on or off. What is BMW’s game? Is BMW’s purpose to gouge its customers for more money through getting them to pay an ongoing fee for something instead of owning it outright? This is not what its subscription structure indicates. The opposite, in fact. Customers can still buy these options outright. A heated steering wheel in the UK, for example, costs <a href="https://www.bmw.co.uk/en/shop/ls/dp/Steering_Wheel_Heating_SFA_gb" target="_blank" rel="noopener">£200</a>, and in New Zealand <a href="https://www.bmw.co.nz/en/shop/ls/dp/Steering_Wheel_Heating_SFA_nz" target="_blank" rel="noopener">NZ$350</a>. But now they can also pay a subscription – for three years (£150, NZ$250), annually (£100, NZ$250) or monthly (£10, NZ$20). These prices represent a strong signal – that the cost of outright ownership is the most economical. It’s unlikely BMW expects anyone to sign up for the annual or three-yearly options. These are probably just to make the outright cost look more attractive. The monthly offering, on the other hand, may lure owners to try out a feature they would otherwise have rejected buying outright at the time of purchase. Indeed, car makers argue the reason they offer so many options as extras is because most owners don’t want them. So this mostly looks like BMW offering a “try before you buy” option. The pitfalls of over-subscribing That said, companies don’t need to have sinister motives for us to have concerns about the spread of the subscription model. The more things we pay for with “micro-payments”, the harder it becomes to keep track of payments. Many of us continue to pay for products and services we don’t use. A survey of 1,000 Australian adults in 2021, for example, found about a third wasted money on unused subscriptions or memberships – losing an average of about <a href="https://www.savings.com.au/savings-accounts/unused-lockdown-subscriptions-are-costing-aussies-200-a-year" target="_blank" rel="noopener">A$200 a year</a>. Deep psychological associations can influence these decisions. Experiments by US marketing professors Jennifer Savary and Ravi Dhar suggests people with lower “<a href="https://academic.oup.com/jcr/article-abstract/46/5/887/5498871" target="_blank" rel="noopener">self-concept</a>” are less likely to sign up for subscriptions – but also less likely to cancel subscriptions they are not using. We may see the subscription model increasingly used in other sectors – including the health and justice systems. For example, a subscription payment may provide a better level of nutritious food for a resident in an aged care facility, or a hospital or even a prison. This is not dissimilar to the way private health insurance premiums are managed, but still presents important justice and equity concerns. So while there’s no reason to exaggerate the dangers of the subscription economy, it’s also prudent for consumers, advocacy groups and governments to ask “What next?”.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/186913/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/louise-grimmer-212082" target="_blank" rel="noopener">Louise Grimmer</a>, Senior Lecturer in Retail Marketing and Associate Head Research Performance, <a href="https://theconversation.com/institutions/university-of-tasmania-888" target="_blank" rel="noopener">University of Tasmania</a> This article is republished from <a href="https://theconversation.com" target="_blank" rel="noopener">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/a-heated-steering-wheel-for-20-a-month-whats-driving-the-subscriptions-economy-186913" target="_blank" rel="noopener">original article</a>. Image: Getty Images

Money & Banking

New Treasurer claims ScoMo left economy in "a mess"

New Labor Treasurer Jim Chalmers has claimed Scott Morrison left Australia's economy in "a mess", and warned Aussies of a "serious economic challenges" ahead. At a press conference on Wednesday, Chalmers told the media that inflation and interest rates were higher since the end of March, petrol prices were up 12 per cent since the end of April, and wholesale electricity and gas prices were also significantly higher under the Morrison government. “We do have labour shortages and we do still have Covid absenteeism, and the international environment has become more challenging as well,” he told reporters. “There is no point tiptoeing around these serious economic challenges. There is no point mincing words about the sorts of conditions that we have inherited." “We have inherited high and rising inflation and rising interest rates, we’ve inherited falling real wages and we’ve inherited $1 trillion in debt.” He went on to say that the economy forecast was weaker in March than the Morrison government claimed at election time, while saying, “Consumption, dwelling investment, new business investment, exports and nominal GDP were all weaker in the March quarter than was anticipated by our predecessors.” “These national accounts are a glimpse of the mess that the former government left behind for us to clean up." “Obviously, we want the economy to recover strongly. Obviously, we want household consumption and other key elements of the national accounts to be as strong as possible. “But even when, on the surface, they might look stronger than they have been during the worst of Covid, they are still short of what the government was hoping for.” In relation to growing energy costs, Chalmers said there was a "perfect storm" of challenges facing the energy market. “These are the costs and consequences of almost a decade now of a government with 22 different energy policies failing to land the necessary certainty to improve the resilience of our energy markets,” he said. “This is the chickens coming home to roost when it comes to almost a decade now on climate change and energy policy failure from our predecessors." The Albanese government has been passionate about their climate change policy, with a strong goal of reaching net zero by 2050. Despite the government's passion for energy reform, financial experts have warned that growing oil and gas prices could plunge Australia into a recession before Christmas if radical change isn't made sooner rather than later. Chalmers also said that workers on a minimum wage should not be further disadvantaged through the ongoing cost of living crisis. “Minimum wage workers were in many cases the heroes of the pandemic. They shouldn’t be going backwards in this cost of living crisis,” he said. Although Labor are dedicated to reducing the cost of living, The Australian Bureau of Statistics (ABS) said global events – including the rolling conflict in Ukraine – would continue to impact the Australian economy in the months ahead. Image credits: Getty Images

News

Healthy humans drive the economy: we’re now witnessing one of the worst public policy failures in Australia’s history

Australians are getting a stark reminder about how value is actually created in an economy, and how supply chains truly work. Ask chief executives where value comes from and they will credit their own smart decisions that inflate shareholder wealth. Ask logistics experts how supply chains work and they will wax eloquent about ports, terminals and trucks. Politicians, meanwhile, highlight nebulous intangibles like “investor confidence” – enhanced, presumably, by their own steady hands on the tiller. The reality of value-added production and supply is much more human than all of this. It is people who are the driving force behind production, distribution and supply. Labour – human beings getting out of bed and going to work, using their brains and brawn to produce actual goods and services – is the only thing that adds value to the “free gifts” we harvest from nature. It’s the only thing that puts food on supermarket shelves, cares for sick people and teaches our children. Even the technology used to enhance workers’ productivity – or sometimes even replace them – is ultimately the culmination of other human beings doing their jobs. The glorious complexity of the whole economy boils down to human beings, using raw materials extracted and tools built by other human beings, working to produce goods and services. <h2>A narrow, distorted economic lens</h2> The economy doesn’t work if people can’t work. So the first economic priority during a pandemic must be to keep people healthy enough to keep working, producing, delivering and buying. That some political and business leaders have, from the outset of COVID-19, consistently downplayed the economic costs of mass illness, reflects a narrow, distorted economic lens. We’re now seeing the result – one of the worst public policy failures in Australia’s history. The Omicron variant is tearing through Australia’s workforce, from <a href="https://www.smh.com.au/national/nsw/nurses-are-in-despair-as-staffing-shortages-bite-in-nsw-hospitals-20220103-p59ljc.html?fbclid=IwAR3obDpqk7Muu2xpOA1H7MH2D2TuxPIzMQrL_NKk2QoKHA2LriWoRcmRO8o">health care</a> and <a href="https://www.smh.com.au/national/nsw/hundreds-of-nsw-childcare-centres-shut-due-to-covid-20220104-p59ls4.html">child care</a>, to <a href="https://www.edenmagnet.com.au/story/7575635/knock-on-effects-through-supply-chain-despite-eased-covid-rules-for-workers/">agriculture</a> and <a href="https://www.freshplaza.com/article/9388733/omicron-has-now-put-us-in-a-desperate-situation-in-regards-to-workers-shortage-and-shipping-issues/">manufacturing</a>, to <a href="https://www.abc.net.au/news/2022-01-06/supermarket-shortage-supply-chain-truck-driver-covid/100741392">transportation and logistics</a>, to <a href="https://www.smh.com.au/national/surf-lifesavers-and-students-fill-paramedic-shifts-as-omicron-spreads-20220108-p59mrq.html">emergency services</a>. The result is an unprecedented, and preventable, economic catastrophe. This catastrophe was visited upon us by leaders – NSW Premier Dom Perrotet and Prime Minister Scott Morrison in particular – on the grounds they were protecting the economy. Like a Mafia kingpin extorting money, this is the kind of “protection” that can kill you. <h2>Effect as bad as lockdowns</h2> On a typical day in normal times, between <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/nov-2021/EM2b.xlsx">3% and 4% of employed Australians</a> miss work due to their own illness. Multiple reports from NSW indicate up to half of workers are now absent due to COVID: because they contracted it, were exposed to it, or must care for someone (like children barred from child care) because of it. With infections still spreading, this will get worse in the days ahead. Staffing shortages have left hospitals in chaos, supermarket shelves empty, supply chains paralysed. ANZ Bank data, for example, shows <a href="https://twitter.com/ANZ_Research/status/1479284711151345666?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet">economic activity in Sydney</a> has fallen to a level lower than the worst lockdowns. <hr /> Spending in Sydney and Melbourne now near lockdown conditions <a href="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="ANZ Bank data shows spending in Sydney and Melbourne has fallen to levels typical of lockdown conditions." /></a> ANZ Research <hr /> If relaxing health restrictions in December (as Omicron was already spreading) was motivated by a desire to boost the economy, this is an own-goal for the history books. <h2>Relaxing isolation rules</h2> Now the response to Omicron ravaging labour supply is to relax isolation requirements for workers who have contracted, or been exposed to, COVID-19. The first step was to shift the goalposts on “test, trace, isolate and quarantine” arrangements by redefining “close contact”. On December 29 <a href="https://www.pm.gov.au/media/press-conference-kirribilli-nsw-10">the Prime Minister said</a> it was important to move to a new definition “that enables Australia to keep moving, for people to get on with their lives”. The next day National Cabinet <a href="https://www.pm.gov.au/media/national-cabinet-statement-12">approved a definition</a> such that only individuals having spent at least four hours indoors with a COVID-infected person needed to isolate. Australians certainly want supply chains to keep moving. That won’t happen by simply pretending someone with three hours and 59 minutes of face-to-face indoor contact with Omicron is safe. Putting asymptomatic but exposed and potentially infected people back to work will only accelerate the spread. The second step has been to reduce the isolation period for those who do pass this tougher “close contact” test. At its December 30 meeting National Cabinet agreed to a standard isolation period of seven days (ten days in South Australia), <a href="https://www1.racgp.org.au/newsgp/gp-opinion/so-you-have-been-asked-to-self-isolate-or-quaranti">down from 14 days</a>. For “critical workers” in essential services including food logistics, the NSW and Queensland governments <a href="https://www.news.com.au/finance/work/at-work/isolation-rules-relaxed-for-critical-workers-as-nsw-battles-supply-chain-issues/news-story/2b97ef133f6c3caff9dcd5bc548cc58b">have gone even further</a>, allowing employers to call them back to work so long as they are asymptomatic. <h2>Snatching defeat from the jaws of victory</h2> This follows a <a href="https://www.cdc.gov/media/releases/2021/s1227-isolation-quarantine-guidance.html">US precedent</a>, despite <a href="https://www.nejm.org/doi/pdf/10.1056/NEJMc2102507?articleTools=true">scientific evidence</a> indicating contagion commonly lasts longer than 5 days. Employers will use this change to pressure exposed and even sick workers to return to work, risking their own health, colleagues, customers, and inevitably spreading the virus further. Copying US COVID protocols only guarantees US-style infection rates. In fact, since 5 January, Australia’s seven-day rolling average infections per million <a href="https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2021-03-30..latest&facet=none&pickerSort=desc&pickerMetric=total_cases_per_million&hideControls=true&Metric=Confirmed+cases&Interval=7-day+rolling+average&Relative+to+Population=true&Color+by+test+positivity=false&country=USA%7EAUS">now exceed that of the US</a>. <hr /> <a href="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="Daily new confirmed COVID-19 cases per million people, Australia compared to United States." /></a> <a href="https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2021-03-30..latest&facet=none&pickerSort=desc&pickerMetric=total_cases_per_million&hideControls=true&Metric=Confirmed+cases&Interval=7-day+rolling+average&Relative+to+Population=true&Color+by+test+positivity=false&country=USA~AUS" class="source">Our Wold in Data</a>, <a href="http://creativecommons.org/licenses/by/4.0/" class="license">CC BY</a> <hr /> From one of the best COVID responses in the world to one of the worst, Australia has snatched defeat from the jaws of victory. <h2>It’s not too late to limit the carnage</h2> The idea that health considerations <a href="https://www.theguardian.com/australia-news/2021/oct/07/its-an-economic-crisis-too-in-nsw-what-a-difference-a-new-premier-makes">had to be balanced with economic interests</a> was always a false dichotomy. A healthy economy requires healthy workers and healthy consumers. The Omicron surge has created an economic emergency that will be difficult to endure. But it’s not too late to limit further avoidable contagion. Infection prevention practices (including masks, capacity limits, prohibitions on group indoor activities, PPE and distancing in workplaces, and free and accessible rapid tests) must be restored and enforced. Income supports for workers who stay home must be restored. Staffing strategies need to emphasise steady, secure jobs, rather than outsourcing and gig arrangements which have facilitated contagion. Above all, our policy makers need to remember the economy is composed of human beings, and refocus their attention on keeping people healthy. Protecting people is the only thing that can protect the economy.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/174606/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/jim-stanford-521684">Jim Stanford</a>, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, <a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a> This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/healthy-humans-drive-the-economy-were-now-witnessing-one-of-the-worst-public-policy-failures-in-australias-history-174606">original article</a>. Image: Shutterstock

Retirement Income

World economy in 2022: the big factors to watch closely

Will 2022 be the year where the world economy recovers from the pandemic? That’s the big question on everyone’s lips as the festive break comes to an end. One complicating factor is that most of the latest major forecasts were published in the weeks before the <a rel="noopener" href="https://www.who.int/news/item/26-11-2021-classification-of-omicron-(b.1.1.529)-sars-cov-2-variant-of-concern" target="_blank">omicron variant</a> swept the world. At that time, the mood was that recovery was indeed around the corner, with the IMF projecting <a rel="noopener" href="https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021" target="_blank">4.9% growth</a> in 2022 and the OECD <a rel="noopener" href="https://www.oecd.org/newsroom/oecd-economic-outlook-sees-recovery-continuing-but-warns-of-growing-imbalances-and-risks.htm" target="_blank">projecting 4.5%</a>. These numbers are lower than the circa 5% to 6% global growth expected to have been achieved in 2021, but that represents the inevitable rebound from reopening after the pandemic lows of 2020. So what difference will omicron make to the state of the economy? We already know that it had an effect in the run-up to Christmas, with for example <a rel="noopener" href="https://www.theguardian.com/business/live/2021/dec/23/omicron-hits-uk-economy-growth-car-production-market-optimism-energy-crisis-business-live?filterKeyEvents=false&page=with:block-61c46e4c8f08efd5f0de270a#block-61c46e4c8f08efd5f0de270a" target="_blank">UK hospitality</a> taking a hit as people stayed away from restaurants. For the coming months, the combination of raised restrictions, cautious consumers and people taking time off sick is likely to take its toll. Yet the fact that the new variant seems milder than originally feared is likely to mean that restrictions are lifted more quickly and that the economic effect is more moderate than it might have been. <a rel="noopener" href="https://www.reuters.com/world/middle-east/israel-admit-some-foreigners-with-presumed-covid-immunity-jan-9-2022-01-03/" target="_blank">Israel</a> and <a rel="noopener" href="https://www.aljazeera.com/economy/2022/1/3/australia-pushes-on-with-reopening-amid-milder-impact-of-omicron" target="_blank">Australia</a>, for example, are already loosening restrictions despite high case numbers. At the same time, however, until the west tackles very low <a rel="noopener" href="https://ourworldindata.org/covid-vaccinations?country=OWID_WRL" target="_blank">vaccination rates</a> in some parts of the world, don’t be surprised if another new variant brings further damage to both public health and the world economy. As things stand, the UK thinktank the Centre for Economics and Business Research (CEBR) published a more recent <a rel="noopener" href="https://www.bloomberg.com/news/articles/2021-12-26/world-economy-now-set-to-surpass-100-trillion-in-2022" target="_blank">2022 forecast</a> just before Christmas. It predicted that global growth would reach 4% this year, and that the total world economy would hit a new all-time high of US$100 trillion (£74 trillion). The inflation question One other big unknown is inflation. In 2021 we saw a sudden and sharp surge in inflation resulting from the restoration of global economic activity and bottlenecks in the <a rel="noopener" href="https://obr.uk/box/the-economic-effects-of-supply-bottlenecks/" target="_blank">global supply chain</a>. There has been <a rel="noopener" href="https://theconversation.com/inflation-why-its-temporary-and-raising-interest-rates-will-do-more-harm-than-good-172329" target="_blank">much debate</a> about whether this inflation will prove temporary, and central banks have been coming under pressure to ensure it doesn’t spiral. So far, the European Central Bank, Federal Reserve and Bank of Japan have all abstained from raising interest rates from their very low levels. The Bank of England, on the other hand, followed the <a rel="noopener" href="https://www.ft.com/content/ca15ce59-ca72-497c-bf7a-c1482d972f01" target="_blank">IMF’s advice</a> and <a rel="noopener" href="https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-2021" target="_blank">raised rates</a> from 0.1% to 0.25% in December. This is too little to curb inflation or do any good besides increase the cost of borrowing for firms and to raise <a rel="noopener" href="https://www.bbc.com/news/business-59140059" target="_blank">mortgage payments</a> for households. That said, the <a rel="noopener" href="https://www.reuters.com/markets/europe/sterling-nears-2-year-high-vs-euro-rate-rise-bets-2022-01-04/" target="_blank">markets are betting</a> that more UK rate rises will follow, and that <a rel="noopener" href="https://www.cnbc.com/2022/01/03/markets-and-the-economy-brace-as-the-feds-first-hike-could-come-in-two-months.html" target="_blank">the Fed</a> will also start raising rates in the spring. Yet the more important question regarding inflation is what happens to quantitative easing (QE). This is the policy of increasing the money supply that has seen the major central banks <a rel="noopener" href="https://www.atlanticcouncil.org/global-qe-tracker/" target="_blank">buying some</a> US$25 trillion in government bonds and other financial assets in recent years, including about US$9 trillion on the back of COVID. Both the Fed and ECB are still operating QE and adding assets to their balance sheets every month. The Fed is <a rel="noopener" href="https://www.businessinsider.com/personal-finance/fed-tapering?r=US&IR=T" target="_blank">currently tapering</a> the rate of these purchases with a view to stopping them in March, having recently announced that it would bring forward the end date from June. <a rel="noopener" href="https://www.ft.com/content/03a30484-b265-4a88-a861-de1784305d40" target="_blank">The ECB</a> has also said it will scale back QE, but is committed to continuing for the time being. Of course, the real question is what these central banks do in practice. Ending QE and raising interest rates will undoubtedly hamper the recovery – the <a rel="noopener" href="https://cebr.com/reports/city-am-uk-to-remain-one-of-the-top-six-global-economies-post-covid-says-cebr-report/" target="_blank">CEBR forecast</a>, for example, assumes that it will see bond, stock and property markets falling by 10% to 25% in 2022. It will be interesting to see whether the prospect of such upheaval forces the Fed and Bank of England to get more dovish again – particularly when you factor in the continued uncertainty around COVID. Politics and global trade The trade war between the US and China looks likely to continue in 2022. The “<a rel="noopener" href="https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods" target="_blank">phase 1</a>” deal between the two nations, in which China had agreed to increase its purchases of certain US goods and services by a combined US$200 billion over 2020 and 2021 has missed its target <a rel="noopener" href="https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods" target="_blank">by about 40%</a> (as at the end of November). The deal has now expired, and the <a rel="noopener" href="https://www.globaltimes.cn/page/202201/1243977.shtml" target="_blank">big question</a> for international trade in 2022 is whether there will be a <a rel="noopener" href="https://www.ced.org/solutions-briefs/the-china-trade-challenge-phase-ii" target="_blank">new “phase 2” deal</a>. It is hard to feel particularly optimistic here: Donald Trump may have long since left office, but US strategy on China remains <a rel="noopener" href="https://www.project-syndicate.org/commentary/biden-losing-china-strategy-protectionism-industrial-policy-by-anne-o-krueger-2021-09?utm_source=Project%20Syndicate%20Newsletter&utm_campaign=bf7c015f95-sunday_newsletter_12_26_2021&utm_medium=email&utm_term=0_73bad5b7d8-bf7c015f95-105568073&mc_cid=bf7c015f95&mc_eid=14a09c8529&barrier=accesspaylog" target="_blank">distinctly Trumpian</a>, with no notable concessions having been offered to the Chinese under Joe Biden. Elsewhere, western tensions with Russia over Ukraine and further escalation of economic sanctions against Putin may have economic consequences for the global economy – not least because of Europe’s dependency on Russian gas. The more engagement that we see on both fronts in the coming months, the better it will be for growth. Whatever happens politically, it is clear that Asia will be very important for growth prospects in 2022. Major economies such as <a rel="noopener" href="https://www.bloomberg.com/news/articles/2021-12-22/u-k-economy-closer-to-pre-pandemic-levels-despite-3q-downgrade?sref=Hjm5biAW" target="_blank">the UK</a>, <a rel="noopener" href="https://tradingeconomics.com/japan/gdp" target="_blank">Japan</a> and the <a rel="noopener" href="https://tradingeconomics.com/euro-area/gdp" target="_blank">eurozone</a> were all still smaller than before the pandemic as recently as the third quarter of 2021, the latest data available. The only major developed economy that has already recovered its losses and regained its pre-COVID size is <a rel="noopener" href="https://www.brookings.edu/blog/up-front/2021/12/08/a-most-unusual-recovery-how-the-us-rebound-from-covid-differs-from-rest-of-g7/" target="_blank">the United States</a>. Economic growth by country since 2015 <a href="https://images.theconversation.com/files/439333/original/file-20220104-18500-zchaq3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/439333/original/file-20220104-18500-zchaq3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> OECD data On the other hand, China has <a rel="noopener" href="https://www.worldometers.info/coronavirus/country/china/" target="_blank">managed the pandemic</a> well – albeit with strict control measures – and its economy has achieved strong growth since the second quarter of 2020. It has been <a rel="noopener" href="https://theconversation.com/chinas-problem-with-property-the-domino-effect-of-evergrandes-huge-debts-168601" target="_blank">struggling with</a> a heavily over-indebted property market, but appears to have handled these problems <a rel="noopener" href="https://www.wsj.com/articles/china-evergrande-says-construction-has-resumed-at-vast-majority-of-its-projects-11640602229" target="_blank">relatively smoothly</a>. Though the jury is out on the extent to which <a rel="noopener" href="https://edition.cnn.com/2021/12/15/economy/china-omicron-economy-intl-hnk/index.html" target="_blank">China’s debt problems</a> will be a drag in 2022, some such as Morgan Stanley <a rel="noopener" href="https://www.cnbc.com/2022/01/03/morgan-stanley-on-chinas-gdp-economy-in-2022.html" target="_blank">argue that</a> strong exports, accommodative monetary and fiscal policies, relief for real estate sector and a slightly more relaxed approach to carbon reduction point to a decent performance. As for India, whose economy has seen double dips during the pandemic, it is showing a strong positive trend with <a rel="noopener" href="https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021" target="_blank">8.5% expected growth</a> in the year ahead. I therefore suspect that emerging Asia will shoulder global growth in 2022, and the world’s <a rel="noopener" href="https://onlinelibrary.wiley.com/doi/10.1111/j.1758-5899.2010.00066.x" target="_blank">economic centre of gravity</a> will continue to shift eastwards at an accelerated pace.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/174350/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a rel="noopener" href="https://theconversation.com/profiles/muhammad-ali-nasir-1244347" target="_blank">Muhammad Ali Nasir</a>, Associate Professor in Economics and Finance, <a rel="noopener" href="https://theconversation.com/institutions/university-of-huddersfield-1226" target="_blank">University of Huddersfield</a> This article is republished from <a rel="noopener" href="https://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a rel="noopener" href="https://theconversation.com/world-economy-in-2022-the-big-factors-to-watch-closely-174350" target="_blank">original article</a>. Image: Getty Images

Money & Banking

How to make roads with recycled waste, and pave the way to a circular economy

It cost <a href="https://www.buildingfortomorrow.wa.gov.au/projects/russell-road-to-roe-highway/">A$49 million</a> to add 12.5 kilometres of extra lanes to Western Australia’s Kwinana Highway, south of Perth’s CBD. That’s not unusual. On average, building a single lane of road costs about about <a href="https://www.bitre.gov.au/sites/default/files/rr148.pdf">A$5 million per kilometre</a>. What is unusual about this stretch of extra freeway is not the money but the materials beneath the bitumen: two stabilising layers comprised of <a href="https://www.wasteauthority.wa.gov.au/images/resources/files/2021/06/RtR_Pilot_Report.pdf.pdf">25,000 tonnes of crushed recycled concrete</a>, about 90% of which came from the demolition of Subiaco Oval (once Perth’s premier football ground). <iframe width="440" height="260" src="https://www.youtube.com/embed/jiFwKw3NTkk?wmode=transparent&start=75" frameborder="0" allowfullscreen=""></iframe> Recycling building and construction materials remains the exception to the rule in Australia. The<a href="https://www.awe.gov.au/sites/default/files/documents/national-waste-policy-action-plan-2019.pdf"> National Waste Policy</a> agreed to by federal, state and territory governments has a target of 80% resource recovery by 2030. It’s currently <a href="https://www.awe.gov.au/sites/default/files/documents/sustainable-procurement-guide.pdf">about 40%</a>. Of the 74 million tonnes of waste <a href="https://www.environment.gov.au/system/files/pages/5a160ae2-d3a9-480e-9344-4eac42ef9001/files/national-waste-report-2020.pdf">generated in Australia in 2020</a>, masonry materials comprised about 22.9 million tonnes. Plastics, by comparison, comprised about 2.5 million tonnes. Of the 61.5 million tonnes of “core waste” managed by the waste and resource recovery sector, 44% (27 million tonnes) came from the construction and demolition sector, compared with 20% (12.6 million tonnes) from households and local government activities. Most of this waste – concrete, brick, steel, timber, asphalt and plasterboard or cement sheeting – could be reused or recycled. It ends up in landfill due to simple economics. It’s cheaper to buy new materials and throw them away rather than reuse and recycle. Changing this equation and moving to a circular economy, in which materials are reused and recycled rather than discarded in landfill, is a key goal to reduce the impact of building and construction on the environment, including its contribution to climate change. <h2>The economics of ‘externalities’</h2> The fact it is more “economic” to throw materials away than reuse them is what economists call a market failure, driven by the problem of “externalities”. That is, the social and environmental costs of producing, consuming and throwing away materials is not reflected in the prices charged. Those costs are instead externalised – borne by others. In such cases there is a legitimate – and necessary – role for governments to intervene and correct the market failure. For an externality such as carbon emissions (imposing costs on future generations) the market-based solution favoured by most economists is a carbon price. For construction material waste, governments have a few more policy levers to help create a viable market for more recycling. <h2>Using procurement policies</h2> One way to make recycling more attractive to businesses would be to increase the cost of sending waste materials to landfill. But this would likely have unintended consequences, such as illegal dumping. The more obvious and effective approach is to help create more demand for recycled materials through government procurement, adopting policies that require suppliers to, for example, use a minimum amount of recycled materials. With enough demand, recyclers will invest in further waste recovery, reducing the costs. Lower costs in turn create the possibility of greater demand, creating a virtuous circle that leads to a circular economy. <hr /> <a href="https://images.theconversation.com/files/432794/original/file-20211119-17-19fvngo.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/432794/original/file-20211119-17-19fvngo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="Diagram of the circular economy" /></a> <a href="https://www.awe.gov.au/sites/default/files/documents/sustainable-procurement-guide.pdf" class="source">Australian Government, Sustainable Procurement Guide: A practical guide for Commonwealth entities, 2021</a> Australia’s federal, state and territory governments all have sustainable procurement policies. The federal <a href="https://www.environment.gov.au/system/files/resources/856a1de0-4856-4408-a863-6ad5f6942887/files/sustainable-procurement-guide.pdf">Sustainable Procurement Guide</a> states the Australian government “is committed to transforming Australia’s waste into a resource, where most goods and services can be continually used, reused, recycled and reprocessed as part of a circular economy”. But these policies lack some basic elements. <h2>Three key market-making reforms</h2> Our research suggests three important reforms could make a big difference to waste market operations. This is based on interviewing 27 stakeholders from the private sector and government about how to improve sustainable procurement. First, government waste policies that set aspirational goals are not supported by procurement policies setting mandatory minimum recycled content targets. All contractors on government-funded construction projects should be required to use a percentage of recycled waste materials. Second, the nature of salvaging construction materials means quality can vary significantly. Cement recycled from a demolition site, for example, could contain contaminants that reduce its durability. Governments can help the market through regularly auditing the quality of recycler’s processes, to increase buyer confidence and motivate suppliers to invest in production technologies. Third, in some states (such as Western Australia) the testing regimes for recycled construction products are more complex than that what applies to raw materials. More reasonable specifications would reduce compliance costs and thereby the cost of using recycled materials.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/164997/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/salman-shooshtarian-693412">Salman Shooshtarian</a>, Research Fellow, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a>; <a href="https://theconversation.com/profiles/savindi-caldera-1187623">Savindi Caldera</a>, Research Fellow and Project Development Manager, Cities Research Institute, <a href="https://theconversation.com/institutions/griffith-university-828">Griffith University</a>; <a href="https://theconversation.com/profiles/tayyab-maqsood-711277">Tayyab Maqsood</a>, Associate Dean and Head of of Project Management, <a href="https://theconversation.com/institutions/rmit-university-1063">RMIT University</a>, and <a href="https://theconversation.com/profiles/tim-ryley-1253269">Tim Ryley</a>, Professor and Head of Griffith Aviation, <a href="https://theconversation.com/institutions/griffith-university-828">Griffith University</a> This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/how-to-make-roads-with-recycled-waste-and-pave-the-way-to-a-circular-economy-164997">original article</a>. Image: Main Roads Western Australia

Home Hints & Tips

The do’s and don’ts of the share economy

Selling in the sharing economy seems efficient. You have a spare room you aren’t using, rent it on Airbnb. You have spare time and a car, drive for Uber. You have mad Ikea skills, sell them on Airtasker. Work in the sharing economy can be a major income earner or a cash booster. Whether it's your primary income or you're testing the waters, there are a few dos and don’ts to maintain financial security in the sharing economy. The dos 1. Contribute to superannuation Everyone earning income needs to be paying into superannuation. This is the most tax effective investment you can make in your future. Missing a few years of super payments because you were travelling and covering costs with small gigs will set you back. Even putting a little bit away helps. 2. Get insurance Maintain your income protection insurance to protect against sickness or injury, trauma and TPD insurances. This is more important with the latest legislation change. You might also need professional indemnity and public liability insurance. Professional indemnity protects you if clients claim your service has caused them a loss. Public liability protects you if you injure a customer or damage their property. Check you are covered for general insurances – home, contents, car if you are using them for a side hustle. 3. Research tax requirements, benefits and government regulations Governments are constantly catching-up to the sharing economy. Regulations and tax laws update frequently. Surprise tax bills are nobody’s friend, so keep on top of this. If you’re using your home, car or other assets you have opened up a new world of tax deductions. It’s worth your time to look into this. If this is an undeclared income you can’t claim deductions, but declaring a second-job might mean more tax deductions for things you previously couldn’t claim. Weigh up the options. The don'ts 1. Don't underestimate the lifestyle costs of this work. Consider how this will impact your life. Is it going to be profitable enough to justify the distraction? Could it impact your primary income? What are the actual costs, like cleaning and wear and tear? Would the time and energy spent on this be better spent on a second job or seeking a promotion? Often, we think we can do it all, but everything has a cost. Be honest with yourself about how you want to live. 2. Don't sacrifice your personal finances Know your limits and how much you want to invest to make it work. You’re effectively starting a new business. In the initial set up you will invest your own money. After that draw a clear line between business and personal finances. Think about whether you run the business in your own name, as a trust or as a company. This decision could determine whether you are personally liable for any debts. Understand your finances: what’s coming in, what’s going out, what you owe and what others owe you. This will help you avoid costly mistakes. 3. Don't go in without an exit plan. Regulations change or you might hate it. You need an exit strategy that minimises financial losses. Think about this at the start, before you’ve invested. It may change how you do the initial set up. And if you’re relying on this income, then you’ll also need a back-up plan if you’re not earning it anymore. I have clients who have been earning income for years through the share economy. If planned and structured well it can make a real change to your financial situation. But flying in without considering costs, or personal security, could be dangerous. Take the time to think about your options. Time researching and planning is always a good investment. Helen Baker is a licenced Australian financial adviser and author of two books: On Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Proceeds from the books’ sales are donated to charities supporting disadvantaged women. Helen is among the 1% of financial planners who holds a master’s degree in the field. Find out more at <a href="http://www.onyourowntwofeet.com.au">www.onyourowntwofeet.com.au</a> Note this is general advice only and you should seek advice specific to your circumstances.

Retirement Income

The economy in 7 graphs: How a tightening of wallets pushed Australia into recession

A go-slow on spending sent the economy backwards <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0">0.3%</a> in the first three months of this year, only the fourth such decline since Australia was last in recession in the early 1990s. Treasurer Josh Frydenberg says Treasury has told him the next three months, the June quarter that we are in at present, will see a “<a href="http://www.tveeder.com/560/byrange?&from=1591149600&to=1591160400">far more severe</a>” contraction, one private sector forecasters believe could be as <a href="https://markets.jpmorgan.com/research/email/vbiu7qlb/drUs2ufOlPXL2o6BhGXEoQ/GPS-3389715-0">high as 10%</a>. Asked whether that meant Australia was already in recession, he said it did. <hr /> Quarterly GDP growth since 1990 <a href="https://images.theconversation.com/files/339399/original/file-20200603-133924-qy356o.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339399/original/file-20200603-133924-qy356o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" class="source">ABS 5206.0</a> <hr /> Most unusually for an economic downturn, incomes <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features2Mar%202020?opendocument&tabname=Summary&prodno=5206.0&issue=Mar%202020&num=&view=">rose</a> throughout the quarter, pushed higher by a 6.2% increase in government payments related to COVID-19 and the bushfires, and an 11.1% increase in insurance payouts as a result of bushfires and hailstorms. Household incomes even rose in per capita terms, by 0.1% after abstracting for population growth. But rather than spend more, Australian households dramatically increased saving in the quarter, pushing the household saving ratio up from 3.5% to 5.5% and pushing down household spending 0.2%. <hr /> Household savings ratio <a href="https://images.theconversation.com/files/339403/original/file-20200603-130940-1ygbyfb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339403/original/file-20200603-130940-1ygbyfb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> Commonwealth Treasury <hr /> Spending on goods actually increased over the three months as Australians stocked up on essentials including toilet paper in March. The production of “petroleum, coal, chemical and rubber products” surged <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features6Mar%202020?opendocument&tabname=Summary&prodno=5206.0&issue=Mar%202020&num=&view=">8.1%</a> as consumers stocked up on cleaning and disinfectant products. But spending on services plummeted, led down by dramatic falls in spending on transport and hotels, cafes and restaurants. <hr /> Household consumption, March quarter <a href="https://images.theconversation.com/files/339388/original/file-20200603-133851-1ypiv4d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339388/original/file-20200603-133851-1ypiv4d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> Commonwealth Treasury <hr /> Spending on transport services (airlines and the like) fell 12.0%. Spending on hotels, cafes and restaurants fell 9.2%, each the biggest fall on record. “Production” in these industries fell 4.9% and 7.5%. Profits fell 6.8% and 14.2%. Spending fell on ten of the 17 consumption categories. <hr /> Household consumption by category, March quarter <a href="https://images.theconversation.com/files/339394/original/file-20200603-133875-s4trbq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339394/original/file-20200603-133875-s4trbq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> Commonwealth Treasury <hr /> Most of the changes took place at the very end of the March quarter. A new index of the “stringency” of COVID-19 containment measures released with the national accounts shows these ramped up only in the final two weeks. Most have been in place for the entirety of the June quarter to date, suggesting the impacts on spending and production will be a “<a href="http://www.tveeder.com/560/byrange?&from=1591149600&to=1591160400">lot more substantial</a>”, in the words the treasurer used in the national accounts press conference. <hr /> ABS stringency of containment measures index <a href="https://images.theconversation.com/files/339412/original/file-20200603-130951-fwjz4q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339412/original/file-20200603-130951-fwjz4q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features10Mar%202020?opendocument&tabname=Summary&prodno=5206.0&issue=Mar%202020&num=&view=" class="source">ABS 5206.0</a> <hr /> Were it not for government spending, which has climbed 6.2% throughout the year, the plunge in March-quarter GDP would have been much more severe. Calculations of the Bureau of Statistics suggest it would have been <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features4Mar%202020?opendocument&tabname=Summary&prodno=5206.0&issue=Mar%202020&num=&view=">twice as severe</a>, a March quarter decline of 0.6% rather than 0.3%. <hr /> General government expenditure <a href="https://images.theconversation.com/files/339413/original/file-20200603-130929-jaamqk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339413/original/file-20200603-130929-jaamqk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> Commonwealth Treasury <hr /> The treasurer described Australia as “on the edge of the cliff” in the March quarter, facing “<a href="http://www.tveeder.com/560/byrange?&from=1591149600&to=1591160400">an economist’s version of Armageddon</a>”. The treasury had been contemplating a fall in gross domestic product of 20% in the June quarter. Australia has avoided that fate by acting on health and the economy early. Its fall in GDP of 0.3% in the March quarter was one-third the OECD average. <hr /> International comparisons, real GDP growth, March quarter <a href="https://images.theconversation.com/files/339391/original/file-20200603-133919-10kfhyf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/339391/original/file-20200603-133919-10kfhyf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> Commonwealth Treasury <hr /> The treasurer has scheduled an <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-economic-and-fiscal-outlook">economic update</a> for July 23 which will include the result of a review of the JobKeeper program. Asked whether it could be referred to as a mini-budget, he said it could be. <a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a> This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-economy-in-7-graphs-how-a-tightening-of-wallets-pushed-australia-into-recession-139960">original article</a>.

Retirement Income

Here's how much the lockdown is costing the Australian economy every week

Australia’s coronavirus shutdown is costing the economy $4 billion a week, according to new Treasury analysis that will be considered as the national cabinet meets to decide which restrictions to lift. Treasury has estimated the mass closures of businesses and activities will shrink Gross Domestic Product by 10 to 12 per cent by June, equivalent to $50 billion. The crisis has also been predicted to leave 700,000 more Australians to lose their jobs. Every extra week the current restrictions stay in place costs the economy another $4 billion, Treasurer Josh Frydenberg is expected to say in a planned speech to the National Press Club on Tuesday. “Notwithstanding Australia’s success to date on the health front, and the unprecedented scale and scope of our economic response, our economic indicators are going to get considerably worse in the period ahead before they get better,” Frydenberg will say. He will warn that people need to get back into work quickly. “In the early 1990s, unemployment increased by 5 per cent over three years, but took seven years to get back to its pre-crisis level,” he will say. “It underlines the importance of getting people back to work as soon as possible to avoid the long-term economic and social impacts from a high unemployment rate.” Frydenberg will say he is “<a href="https://www.abc.net.au/news/2020-05-04/coronavirus-shutdown-costing-economy-$4-billion-a-week/12213612">reassured</a>” by the national cabinet’s decision to expedite its consideration of opportunities for COVID-19 restrictions. “The economic shock the world is confronting dwarfs the Global Financial Crisis,” he will say. “Reassuringly, national cabinet has signalled that from this Friday, it will assess more opportunities for easing restrictions, building on decisions already taken to date, such as around elective surgery, or in some states, limited gatherings, and visitations.”

Money & Banking

Open letter from 174 Australian economists: don’t sacrifice health for ‘the economy’

In recent weeks a growing chorus of Australian commentators has called for social distancing measures to be eased or radically curtailed. Some have <a href="https://www.theaustralian.com.au/business/economics/coronavirus-lockdown-hysteria-is-ruining-10-million-lives/news-story/fd5307f58302cf1ab928decb07b2619c">claimed </a>the lives saved by the lockdowns are not worth the damage they are causing to the economy. Others have <a href="https://www.smh.com.au/national/baby-boomers-won-t-like-it-but-next-step-after-lockdown-is-herd-immunity-20200415-p54k0t.html">claimed</a> the case for easing is strengthened by the fact many of the hardest hit by COVID-19 are elderly or suffering from other conditions. Some might expect economists, of all people, to endorse this calculus. But as economists we categorically reject these views, and we believe they do not represent the majority of our profession. We believe a callous indifference to life is morally objectionable, and that it would be a mistake to expect a premature loosening of restrictions to be beneficial to the economy and jobs, given the rapid rate of contagion. It is wishful thinking to believe we face a choice between a buoyant economy without social distancing and a deep recession with social distancing. In a world with COVID-19, there are no good choices. The best we can do is limit the spread of COVID-19 as much as practicable and rely on the strength of the government’s balance sheet to cushion the impact on the workers and businesses hardest hit. Our success to date is a direct result of the measures taken, but we cannot afford to be complacent. We recognise there are trade-offs on some margins, but we urge the government to work closely with public health experts to carefully determine at what time, in what ways, and in which sectors, to begin lifting restrictions. There should be no doubt the cost of getting this wrong is very high. Open Letter from Australian Economists 19 April, 2020 Dear Prime Minister and Members of the National Cabinet, The undersigned economists have witnessed and participated in the public debate about when to relax social-distancing measures in Australia. Some commentators have expressed the view there is a trade-off between the public health and economic aspects of the crisis. We, as economists, believe this is a false distinction. We cannot have a functioning economy unless we first comprehensively address the public health crisis. The measures put in place in Australia, at the border and within the states and territories, have reduced the number of new infections. This has put Australia in an enviable position compared to other countries, and we must not squander that success. We recognise the measures taken to date have come at a cost to economic activity and jobs, but believe these are far outweighed by the lives saved and the avoided economic damage due to an unmitigated contagion. We believe strong fiscal measures are a much better way to offset these economic costs than prematurely loosening restrictions. As has been foreshadowed in your public remarks, our borders will need to remain under tight control for an extended period. It is vital to keep social-distancing measures in place until the number of infections is very low, our testing capacity is expanded well beyond its already comparatively high level, and widespread contact tracing is available. A second-wave outbreak would be extremely damaging to the economy, in addition to involving tragic and unnecessary loss of life. Sincerely, <a href="https://theconversation.com/profiles/alison-booth-153308">Professor Alison Booth</a>, Australian National University <a href="https://theconversation.com/profiles/jeff-borland-1079">Professor Jeff Borland</a>, University of Melbourne <a href="https://theconversation.com/profiles/lisa-cameron-986169">Professorial Research Fellow Lisa Cameron</a>, Melbourne Institute, University of Melbourne <a href="https://theconversation.com/profiles/efrem-castelnuovo-145615">Professor Efrem Castelnuovo</a>, University of Melbourne <a href="https://theconversation.com/profiles/deborah-ann-cobb-clark-729631">Professor Deborah Cobb-Clark</a>, University of Sydney <a href="https://scholar.harvard.edu/ashley-craig/home">Assistant Professor Ashley Craig</a>, University of Michigan <a href="https://theconversation.com/profiles/chris-edmond-673265">Professor Chris Edmond</a>, University of Melbourne <a href="https://nisvanerkal.net/">Professor Nisvan Erkal</a>, University of Melbourne <a href="https://theconversation.com/profiles/john-freebairn-90">Professor John Freebairn</a>, University of Melbourne <a href="https://theconversation.com/profiles/renee-fry-mckibbin-673270">Professor Renée Fry-McKibbin</a>, Australian National University <a href="https://theconversation.com/profiles/joshua-gans-399">Professor Joshua Gans</a>, University of Toronto <a href="https://theconversation.com/profiles/jacob-k-goeree-562903">Professor Jacob Goeree</a>, UNSW Business School <a href="https://theconversation.com/profiles/quentin-grafton-1941">Professor Quentin Grafton</a>, Australian National University <a href="https://www.rse.anu.edu.au/about-us/our-people/people/?profile=Simon-Grant">Professor Simon Grant</a>, Australian National University <a href="https://theconversation.com/profiles/pauline-grosjean-343133">Professor Pauline Grosjean</a>, UNSW Business School <a href="https://theconversation.com/profiles/jane-hall-1280">Distinguished Professor Jane Hall</a>, University of Technology Sydney <a href="https://theconversation.com/profiles/steven-hamilton-155869">Assistant Professor Steven Hamilton</a>, George Washington University <a href="https://theconversation.com/profiles/ian-harper-8628">Professor Ian Harper</a>, Melbourne Business School <a href="https://theconversation.com/profiles/richard-holden-118107">Professor Richard Holden</a>, UNSW Business School <a href="https://research.monash.edu/en/persons/david-johnston">Professor David Johnston</a>, Monash University <a href="https://theconversation.com/profiles/flavio-menezes-4124">Professor Flavio Menezes</a>, University of Queensland <a href="https://theconversation.com/profiles/warwick-mckibbin-9129">Professor Warwick McKibbin</a>, Australian National University <a href="https://economics.uchicago.edu/directory/simon-mongey">Assistant Professor Simon Mongey</a>, University of Chicago <a href="https://theconversation.com/profiles/james-morley-9918">Professor James Morley</a>, University of Sydney <a href="http://www.josephlyonmullins.com/">Professor Joseph Mullins</a>, University of Minnesota <a href="https://findanexpert.unimelb.edu.au/profile/140028-abigail-payne">Professor Abigail Payne</a>, Melbourne Institute, University of Melbourne <a href="https://theconversation.com/profiles/bruce-preston-452859">Professor Bruce Preston</a>, University of Melbourne <a href="https://theconversation.com/profiles/sue-richardson-552530">Emeritus Professor Sue Richardson</a>, Flinders University <a href="https://theconversation.com/profiles/stefanie-schurer-333154">Professor Stefanie Schurer</a>, University of Sydney <a href="https://fbe.unimelb.edu.au/our-people/staff/economics/kalvinder-shields">Professor Kalvinder Shields</a>, University of Melbourne <a href="https://theconversation.com/profiles/john-quiggin-2084">Professor John Quiggin</a>, University of Queensland <a href="http://www.simonrquinn.com/">Associate Professor Simon Quinn</a>, Oxford University <a href="https://www.philadelphiafed.org/research-and-data/economists/vickery">Economic Advisor James Vickery</a>, Federal Reserve Bank of Philadelphia <a href="http://tomwilkening.com/">Professor Tom Wilkening</a>, University of Melbourne <a href="https://theconversation.com/profiles/justin-wolfers-429743">Professor Justin Wolfers</a>, University of Michigan <a href="https://lens.monash.edu/@yves-zenou">Professor Yves Zenou</a>, Monash University Written by Steve Hamilton, Bruce Preston, Chris Edmond and Richard Holden. Republished with permission of <a href="https://theconversation.com/open-letter-from-174-australian-economists-dont-sacrifice-health-for-the-economy-136686">The Conversation.</a>

Caring

It is necessary to worry about health but pessimism about the economy will hurt us

During this pandemic, our twin health and economic crises require two different types of concern, and they operate differently. For the health crisis, a high level of concern is necessary. Saving lives demands nothing less than full compliance with unprecedented restrictions. For the economic crisis, it is logical to be worried. Elsewhere, I have distinguished between economic <a href="https://www.amazon.com/dp/B0817QK9KR">wants and needs</a>, and right now the provision of needs is under threat. On the other hand, extreme pessimism about the economy is dangerous. The <a href="https://twitter.com/search?q=%23CoronaEconomy&src=typed_query">#CoronaEconomy</a> is different to the normal economy and interpreting it is subject to distortion from <a href="https://en.wikipedia.org/wiki/Confirmation_bias">confirmation bias</a>, which is the tendency for people to process information in a way that screens out things that don’t accord with the narrative they have adopted. The world faces a crisis, and so it is entirely appropriate that many people have adopted a crisis narrative. But if confirmation bias turns it into a view that “nothing good can happen in the economy” it will have gone too far. As the pandemic spreads, the worldwide media will have up to 195 countries and more than a dozen major stock exchanges to confirm that view. This is unfortunate. Just as panic buying can create a crisis in supply chains that needn’t be there, undue pessimism can create a needless crisis in the economy. If those who remain relatively well off through the crisis decide not to spend merely because they are worried about a downturn – the financial equivalent of hoarding – it will make the downturn they are worried about even bigger. In turn it will further threaten people’s employment, accommodation, and their ability to fulfil their basic needs. There is genuine bad news. The pandemic has endangered access to health care, shut down industries, pushed people out of jobs and made it hard to spend. And Australia is taking a huge hit in external income as commodity prices fall. Fortunately there’s also good news. <ul> <li>Voluntary transfer payments are emerging. People and groups are giving away money to meet the unfolding challenges. Some managers at firms such as Qantas are forgoing pay while others are <a href="https://wwos.nine.com.au/nrl/south-sydney-rabbitohs-football-boss-shane-richardson-resigns-coronavirus/cb7a8e51-3696-4624-a223-c74505f05f95">giving up their jobs</a>.</li> <li>Some workers are taking fictional leave, which amounts to a gift to their employer, or sharing around reduced working hours, which amounts to a gift to the employee most likely to miss out otherwise.</li> <li><a href="http://www.mygc.com.au/coles-puts-call-out-for-5000-workers-to-help-meet-demand/">Coles</a>, <a href="https://www.businessinsider.com.au/woolworths-hiring-push-2020-3">Woolworths</a>, and some other employers are expanding. Even “panic buying”, whether justifiable or not, can generate employment.</li> <li>As in the global financial crisis, government stimulus payments can help <a href="https://fbe.unimelb.edu.au/__data/assets/pdf_file/0007/1157038/SHUYUN_MAY_LI_-_ADAM_SPENCER.pdf">cushion</a> unemployment, even though <a href="https://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/8YXU6/upload_binary/8yxu62.pdf;fileType=application%2Fpdf#search=%22media/pressrel/8YXU6%22">not every</a> initiative will operate perfectly.</li> <li>The movement online of what used to be face-to-face activity will make some businesses more productive when the crisis is over, giving them room to grow and provide products and services more cheaply.</li> </ul> Best of all, our country’s exposure to commodity price downturns is limited by our floating exchange rate. More than <a href="https://www.rba.gov.au/chart-pack/balance-payments.html">half</a> our exports are resource-based or rural commodities, meaning large falls in world demand could be expected to wreak havoc with commodity prices and Australian employment. But our floating exchange rate cushions these shocks, as it did during the 1990s Asian financial Crisis, the 2000s global financial crisis and at the end of the mining boom. The latest depreciation is a big one, and will help us. In 1948 the English author CS Lewis, wrote an essay, <a href="https://www.epiclesis.org/wp-content/uploads/2020/03/Florence-Converse-and-C.S.-Lewis.pdf">Living in the Atomic Age</a>, about coping with an ever-present existential threat. His context was different. It was about the atomic bomb. But the message was that the best way to deal with an overwhelming concern was simply to be the best of ourselves. If we are all going to be destroyed by an atomic bomb, let that bomb when it comes find us doing sensible and human things — praying, working, teaching, reading, listening to music, bathing the children … not huddled together like frightened sheep and thinking about bombs. It would help right now if we recognised that extreme concern, while entirely appropriate as a means to protect health, isn’t helpful as a means of protecting the economy. There’s no point huddling together like economically-frightened sheep. It blinds us to the good that’s around us now, and the good that is to come. Written by Gordon Menzies. Republished with permission of <a href="https://theconversation.com/it-is-necessary-to-worry-about-health-but-pessimism-about-the-economy-will-hurt-us-135670">The Conversation.</a>

Beauty & Style

End of economy perk we all took for granted

Passengers were less than impressed on their final 90-minute slog of the 22 hour long flight from London to Sydney. As many were looking forward to a hot breakfast, they were greeted with a sad little sandwich. This could soon be the new norm in economy long-haul flights. However, an aviation analyst has explained that as long-haul flights become the norm, hot breakfasts in economy could be a thing of the past. “It could be the end of the hot breakfast in economy,” one aviation analyst told <a href="https://www.news.com.au/travel/travel-advice/flights/lufthansa-signals-end-to-economy-class-perk-we-all-took-for-granted/news-story/6804d7726aff3584156602e7d8a87d6c">news.com.au</a>. It seems like airlines could be following in the footsteps of the German giant airline Lufthansa, who let it slip that they were ditching their second hot meal on all flights of more than 10 hours in length. However, the airline didn’t put out a press release on the matter but it was picked up by airline blogs. “Over the past few months, we have carried out over 80 flights with various test scenarios. Thus, it was possible for us to establish a modern service according to current customer wishes thanks to feedback from our customers,” Lufthansa’s Asia-Pacific Head of Communications Klaus Pokorny told <a href="https://www.news.com.au/travel/travel-advice/flights/lufthansa-signals-end-to-economy-class-perk-we-all-took-for-granted/news-story/6804d7726aff3584156602e7d8a87d6c">news.com.au</a>. “Many customers like the possibility of either enjoying this second meal immediately or packing it for the rest of their journey,” Pokorny explained. However, Qantas has insisted that they’re not following suit, although an aviation expert warns that others airlines might be tempted to follow the trend. “The price point for most people is the economy fare and so we now have these low fares airlines that aren’t actually low cost airlines,” the aviation consultant explained. “People will buy bundles off a base fare, like having a hot breakfast, and the airlines will end up with more revenue. “It’s the way of the future. It could be the end of the (included) hot breakfast in economy.”

Travel Trouble

Do you think it’s reasonable that tourists pay more than the locals?

While some have resigned to being charged more than the locals when travelling, other tourists are taking a stand against the price hikes. The issue is more complex than tourists tend to think, as the prices that tourists are charged can often help the local economies of the destinations they’re visiting. Award-winning travel photographer Lola Akinmade Åkerström says that tourists should be okay with paying higher prices. She told <a href="https://www.abc.net.au/life/is-it-reasonable-to-pay-tourist-prices-when-travelling-overseas/11395356">ABC Life</a>: "I truly believe travellers should be OK with paying higher prices as foreigners," Lola says. "Aside from opening their land, country and homes to us as travellers, there might also be income disparities between visitors and the locals. "Your one lavish dinner might equal the cost of someone's monthly rent." However, one other traveller disagrees as they were charged a huge rate for a short journey while travelling overseas. Gunnar Garfors broke the record for being the youngest hobby traveller to visit all 198 countries in the world. However, one cab ride in 2009 stands out as his worst rip-off attempt. "My brother Oystein and I stopped a taxi in Riga," he says. "We told the driver we were headed to the airport. 'Please use the meter,' I asked. He didn't respond, but turned it on — seemingly reluctant. "In less than a minute, the meter had managed to clock up almost 10 euro, more than what we'd normally pay for the entire trip to the airport [a 10-15 minute drive from town]. I have never seen a meter run like that before. It looked like a stopwatch. "We weren't in the mood to fight so we asked him to pull over, I paid him and we left. "He immediately sped off. He had probably pressed a hidden button on the meter. There is no way he could get away with charging locals anywhere near what he had done to us. We managed to stop another car a few minutes later, and he drove us all the way to the airport for a fiver." He believes that the prices should be the same for everyone, regardless of whether or not you’re a tourist. "I think prices should be the same for everyone," he says. "Travel is about creating a mutual understanding between people of different cultures, backgrounds and faiths. It can create lasting friendships, new ideas and opportunities. "But then, we should strive towards equality and sustainability. Tourists should compensate for any pollution or damage, but this needs to apply to anyone — local or foreign." The price you pay as a tourist is dependent on the country you’re travelling in, as well as the situation you find yourself in. For some locals, tourism impacts their lives greatly whereas others won’t be impacted at all. Despite the differing opinions, it’s a personal choice as to whether or not you’re okay with paying more than the locals.

Travel Trouble

Pay peanuts for business class quality: New economy travel option a game-changer for long-haul flights

A mum travelling with her two young children and her partner has shocked other travellers by bringing their attention to an economy upgrade available on Air New Zealand flights. It’s known as the “SkyCouch” and will leave you forgetting all about the temptation of travelling in business or first class. Melbourne mum Adele Barbaro posted about the economy upgrade on Facebook, where it garnered more than 23,000 comments with curious travellers asking about the experience. “We got to experience the Air New Zealand Skycouch on our way here and for those that don’t know what it is, it is a unique economy option where your entire row becomes a bed,” Adele wrote alongside images of herself and her family using the pullout bed. “If there is 2 of you travelling, you can purchase a third seat at half price and you will get the entire row to yourself. “The legs rest all rise to meet the chair in front and create a completely flat, large play or sleep area. “Paul and Harvey had a bed and so did Chloe and I. It’s the next best thing to business (but way cheaper) and perfect for long haul flights with young families. And we all slept.” <iframe src="https://www.facebook.com/plugins/post.php?href=https%3A%2F%2Fwww.facebook.com%2FTheRealMumma%2Fposts%2F893564864353449&width=500" width="500" height="789" style="border: none; overflow: hidden;" scrolling="no" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> The upgrade allows a row of seats to be turned into a couch or a bed after take-off. This means that you’re able to take advantage of the entire row and can use it to lounge or rest on your flight. Passengers are able to purchase the flight add-on from $200 each way (based on a Sydney to Los Angeles flight) when three people have booked the seat row. There’s not a separate price for SkyCouch, as Air New Zealand charges for one economy seat plus the additional fee. However, it will cost you more if you’re travelling alone as you’re reserving the whole row. Many parents have praised the economy upgrade. “Best thing we did was get the sky couch for our holiday kids slept 7 out of 14 hour flight that’s a win for me,” one person wrote. “Skycouch was amazing on our recent trip to USA,” another added. “I wish every airline would allow this.”

Travel Tips

Why taking a holiday is good for the Australian economy

A new report has revealed that more than a quarter of paid workers nationwide have at least four weeks of annual leave just sitting there, waiting to be used. Roy Morgan’s Holiday Travel Currency Report revealed these statistics, and the chief executive Michele Levine says that it presents a unique opportunity to boost Australia’s slow economy. “With the Australian economy showing signs of slowing, the potential boost that would come from people taking their accrued leave would be considerable. This would particularly be the case if Australians were encouraged to holiday in Australia,” she said to <a href="https://thenewdaily.com.au/money/consumer/2019/06/26/australia-holidays-good-economy/">The New Daily</a>. “Particularly with Australia’s 10.9 million paid workforce currently owed an average of more than 12 days’ annual leave, this not only would be good for them to have some relaxation but could also boost the economy.” Australian Tourism Industry chair Evan Hall was enthusiastic about this potential annual leave usage. He told The New Daily that domestic tourism is the “backbone” of the Australian wide $130 billion tourism industry. “Australians love to travel within Australia, especially when the dollar’s low,” he said. “In particular, far more so than with international tourism, domestic travellers really benefit regional areas,” Mr Hall said. “A lot of those smaller towns are really dependent on that travel.” Hall has also noticed the decline in longer trips. “We still get the grey nomads, who will travel for months at a time, but for the most part people are doing those three- to four-day trips instead,” Mr Hall said. “Not as many of us are doing the big two- or three-week drive any more. I guess it’s sometimes harder for people to get those two or three weeks off.”

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