Why going green is the best way to fire up Australia’s economy

Official figures show the Australian economy, if not grinding to a halt, posting a 1.4 per cent annual rate of GDP growth, the slowest in a decade.

This sparked renewed calls for fiscal stimulus from the government. With interest rates already at a record-low 1 per cent, there is only so much more that RBA governor Philip Lowe can do with monetary policy.

There are currently two challenges, however, in achieving fiscal stimulus in Australia. The first is the government’s near obsession with returning the budget to surplus. Returning to surplus makes a great deal of sense in good economic times, and is a welcome sign of good management in those times. But it is exactly the wrong response to an economic downturn. As the events of 2008 showed us, downturns often require rapid and large-scale government spending to prevent a full-blown recession. And if that means a temporary—rather than permanent—hit to budget balance, then so be it.

But that is not yet a narrative the government has been willing to embrace. Any hopes that the government would register a “proof of concept” return to budget surplus this year and then focus on boosting GDP growth was dashed by Prime Minister Scott Morrison’s remarks to NSW Liberals. He made it clear that ongoing surpluses were at the heart of his economic plan, saying: “It’s taken us 12 years— six in our own making—to get this back into surplus this year … We are only in our first surplus year and Labor is already wanting to spend it all in an afternoon, flailing their hands about like they did last time when Australia went into difficult times.”The second challenge is less ideological and more practical. For fiscal stimulus to work, it has to involve large amounts of spending – and fast. This for example is why in 2008 the government literally handed out cash to Australians in the lead up to Christmas. And while large-scale infrastructure projects are often the best way for government to spend large amounts of money well, they are often not the best way to spend money fast.

For this to happen, the relevant infrastructure projects need to be “shovel ready”— or able to be deployed quickly. And shovel readiness requires planning, land acquisition, community consultation, and a ready supply of construction capacity. To put it another way, there are only so many rail lines and airports that can be built all at once. And the specialised skills that workers in this sector need cannot easily be expanded in a significant and timely manner.

We have suggested before that one way to address the problem of shovel readiness is with “green stimulus”. This would involve Treasury working with the states to compile a list of significant environmental expenditures — from tree planting to waterway clean-ups, and cycle-path construction to dune repair — that could be implemented quickly when fiscal stimulus is needed.

The difficulty Australia faces, however, is that we have not done much of the planning to roll-out a full-scale green stimulus package of this kind. There may still be time for federal and state governments to develop such a plan. But in the meantime, the emphasis should be on finding projects that are socially worthwhile and shovel ready.

These parts of the Greens plan are taking a leaf out of the “Green New Deal” playbook of U.S. congresswoman Alexandria Ocasio-Cortez — that combines environmental with broader social concerns. But much of this playbook is not designed to address immediate challenges of a temporary economic downturn. And large parts of it are not compatible with Australia’s traditional emphasis on what we have called “democratic liberalism” over democratic socialism — a commitment to having both government and markets play a key role in ensuring citizens’ economic prosperity.

Large scale infrastructure spending might be a good idea for the Australian economy at the difficult economic moment in which we find ourselves. But both capacity constraints and budget-busting nature of that type of spending make it highly unlikely that it can be implemented on a time-scale that achieves the full fiscal stimulus that we need.

By contrast, a green stimulus focusing on environmental remediation and restoration around Australia is a practical and productive approach that could be rolled out quickly, and which would help both the economy and the environment.

Rosalind Dixon and Richard Holden are professors of law, and economics, respectively, at UNSW Sydney.

That means prioritising green projects that can get done well and fast, not that are necessarily the best long-term investments. The hope, if the economy turns around, is that we will then have both the time and money needed to plan those projects.

This notion of green stimulus is partially consistent with calls from Australian Greens leader Richard di Natale who has called for environmental spending to stimulate the economy. His plan includes some of what we advocate, for instance a $2 billion-a-year nature fund to employ 10,000 people for habitat restoration and conservation projects around Australia. But his plan would include some large-scale infrastructure spending like the Melbourne Metro 2 rail project, which is clearly not shovel ready. And the Greens plan involves large public service pay rises which are anything but temporary, an increase to Newstart which may be worthy, but again is permanent. Finally, it includes raising the minimum wage dramatically—from $740.80 a week to 60 per cent of the median wage.

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