2021 OECD ECONOMIC SURVEY OF AUSTRALIA Resuming strong and sustainable economic growth 14 September 2021 @OECDeconomy @OECD
https://www.oecd.org/economy/australia-economic-snapshot/
Key messages Continuing to support the economy through the pandemic Institutional reforms to strengthen resilience Reviving productivity growth Making the recovery work for all Towards net zero greenhouse gas emissions 2
The initial downturn was milder than in other countries Real GDP 105 Australia
OECD
100
95
90
85 2019Q4
2020Q2
Source: OECD Economic Outlook database.
2020Q4
2021Q2 3
Fiscal policy responded forcefully at the onset Gross government financial balance % of GDP
Australia
0.0
OECD
-2.5 -5.0 -7.5 -10.0 -12.5
2019
Source: OECD Economic Outlook database.
2020
2021
2022 4
Monetary policy reduced funding costs %
Indicators of major bank funding costs 2.5 Term Funding Facility
3-year term deposit
3-year corporate bond rate (A-rated)
2.0 1.5 1.0 0.5 0.0 Jan-20
Apr-20
Jul-20
Oct-20
Jan-21
Apr-21
Source: RBA 5
The new outbreak has caused the recovery to stall 1 500 1 250
New daily COVID-19 cases Cumulative COVID-19 deaths
1 000 750 500 250 0 Mar-20
Jul-20
Nov-20
Mar-21
Jul-21
Source: Our World In Data; Refinitiv 6
Vaccination rates have risen Daily vaccination rates per million inhabitant 12,000 OECD
10,000
United States
Australia
8,000 6,000 4,000 2,000 0
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Source: Our World In Data 7
Economic growth will gradually recover Annual percentage change 2019
2020
2021
2022
Gross domestic product
1.9
-2.5
4.0
3.3
Core inflation
1.6
1.3
2.2
1.7
Unemployment rate (% LF)
5.2
6.5
5.4
4.9
Source: Update of the June OECD Economic Outlook (as of 08/09/21).
8
Key recommendations for continuing to support the economy through the pandemic • Ensure all eligible adults are able to receive COVID-19 vaccination and open international borders at the earliest possible date. • Adopt a more expansionary fiscal stance if containment measures have a more negative impact on economic growth. • Keep monetary policy expansionary, while paying attention to upside inflation risks once the recovery is firmly entrenched.
9
Institutional reforms to increase resilience
10
Population ageing will further increase public debt Gross government debt
% of GDP 80
% of GDP 80
70
70
60
60
50
50
40
40
30
30
20
20
With measures to offset ageing-related costs
10 0 2000
10
Without measures to offset ageing-related costs 2005
2010
Source: OECD Long-term Model
2015
2020
2025
2030
2035
2040
2045
2050
2055
0 2060 11
Underlying inflation remains below the RBA target Y-o-y % changes, s.a. 6
Consumer Price Inflation - all groups
Y-o-y % changes, s.a. 6
Underlying inflation
5
5
4
4
RBA target band
3
3
2
2
1
1
0
0
-1
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
-1
Source: RBA 12
Key recommendations for institutional reforms to strengthen resilience
• Task an independent fiscal institution, such as the Parliamentary Budget Office, with both formal evaluation and monitoring of the government’s fiscal strategy. • Implement a medium-term fiscal strategy with specific targets. • Review the monetary policy framework, undertaking broad consultation with a variety of stakeholders.
13
Reviving productivity growth
14
Labour productivity growth had slowed pre-pandemic Output per person employed
Index 2000 = 100 120 115
OECD
Australia
110 105 100 95 90 2000 Source: OECD
2003
2006
2009
2012
2015
2018 15
The licensing system and regulatory complexity are ripe for reform Product Market Regulation Indicators 3.0
Australia
OECD
3.0
OECD - Top 5
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
Assessment of Impact on Competition
Interaction with Interest Groups
Complexit y of Regulatory Admin. Requirements for Procedures Limited Liability Companies and Personally -Owned Enterprises
Simplification and ev aluation of regulations
Source: OECD PMR database.
Licenses and permits
0.0
Administrativ e burden on startups 16
The tax base is skewed towards direct taxation Revenue as a share of GDP (%) % 35 30
Personal income tax
Goods and services taxes
Corporate income tax
Payroll taxes
Social security contributions
Other
Property taxes
% 35 30
25
25
20
20
15
15
10
10
5
5
0
Australia
Source: OECD Productivity Statistics
OECD
0
17
The banking system is relatively concentrated % 100
Five largest banks share of assets (%)
% 100 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
USA LUX POL TUR JPN GBR CHL MEX FRA HUN LVA CZE CRI COL AUT SVN ITA OECD IRL CAN KOR DEU CHE ESP BEL NZL PRT NLD NOR AUS SWE DNK SVK FIN EST LTU
90
Source: World Bank Global Financial Development database.
18
The business lending share has declined Credit by sector
% of total 80
Businesses
70
Households
60 50 40 30 20 10 0
1990
Source: RBA.
1995
2000
2005
2010
2015
2020
19
Innovation is constrained by access to finance Percentage of firms reporting access to finance as a constraint
% 30
Constraint on performance
% 30
Barrier to innovation
25
25
20
20
15
15
10
10
5
5
0 All firms
Source: ABS.
Innovators Non-innovators Innovation status
0-4
5-20 20-199 Size (number of employees)
200 or more
0
20
Key recommendations for reviving productivity growth • Legislate automatic mutual recognition of occupational licenses. • Reduce the restrictiveness of land use policies, including by allowing local authorities to raise more own-source revenue. • Further shift the tax mix away from income taxes towards the Goods and Services Tax and recurrent land taxes. • Overhaul the Personal Property Securities Register then increase awareness among small businesses and lenders. • Extend open banking to facilitate switching of providers.
21
Making the recovery work for all
22
Unemployment benefits are low % 100
Unemployment benefit net replacement rate, 2020 or latest available year
% 100 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
LUX LVA LTU NLD PRT CHE BEL CZE FRA ITA SVK ISR NOR CAN SVN ISL DNK DEU KOR OECD EST JPN ESP AUT FIN TUR SWE IRL HUN POL GBR USA NZL GRC AUS
90
Source: OECD Tax-Benefit models.
23
Financial literacy lags behind best-performing countries PISA score of student’s financial literacy Score 600
Most advantaged
Most disadvantaged
Score 600
Average
550
550
500
500
450
450
400
400
CHL
ITA
SVK
ESP
LTU
LVA
Source: OECD (2020), PISA 2018 Results (Volume IV).
OECD
PRT
USA
AUS
POL
CAN
FIN
EST
24
Financial vulnerability is higher for Indigenous Australians A. Financial vulnerability % with score 80 70 60 50 40 30 20 10 0 Severe
Indigenous
General population
B. Financial knowledge
% with score 60 50 40 30 20 10
High
Low
Financially secure
0
Poor
Low
Fair
High
Source: M. Weier et al. (2019), Money Stories: Financial Resilience among Aboriginal and Torres Strait Islander Australians 2019; Household Income and Labour Dynamics in Australia (HILDA) database and OECD calculations.. 25
Key recommendations for making the recovery work for all • Further increase the unemployment benefit rate and consider indexing the rate to wage inflation. • Complete the implementation of the reforms arising from the Royal Commission into misconduct in the financial sector. • Embed the Productivity Commission Indigenous Evaluation Strategy in the policy design and evaluation process of all Australian Government agencies.
26
Towards net zero greenhouse gas emissions
27
Achieving net zero by 2050 entails further efforts Greenhouse gas emission projections and required trajectory to achieve net zero emissions at 2050
Mt CO2-e 700
Mt CO2-e 700
2021-2030
600
2031-2050
600
500
500
400
400 Required trajectory to net zero emissions by 2050
300
300
Baseline
200
200
100 0 1990
100 1995
2000
2005
2010
2015
2020
2025
Source: Department of Industry, Science and Energy Resources; OECD calculations.
2030
2035
2040
2045
0 2050 28
All sectors should contribute to net zero emissions Greenhouse gas emission projections and required trajectory to achieve net zero emissions at 2050 Mt CO2-e 700 600
Energy industries Industrial processes and product use Energy - other Land use, land-use change and forestry
Transport Manufacturing industries and construction Waste
Agriculture Residential and other sectors Fugitive emissions from fuels
Mt CO2-e 700 600
500
500
400
400
300
300
200
200
100
100
0 -100
0 2005
2007
2009
Source: OECD Greenhouse Gas Emissions Dataset.
2011
2013
2015
2017
2019
-100 29
Key recommendations for achieving net zero greenhouse gas emissions • Develop a national, integrated Long-term Emissions Reduction Strategy that defines clear goals and corresponding policy settings for the path to achieving net zero emissions “as soon as possible and preferably by 2050”. • Scale up the Safeguard Mechanism that exists as part of the government’s Emissions Reduction Fund to appropriately price carbon emissions across sectors. • Create a roadmap for improving the consistency, comparability and quality of reporting of climaterelated risks by listed companies and financial institutions.
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