OECD Economic Survey of Australia 2021 - Presentation

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.

30

For more information

https://www.oecd.org/economy/australia-economic-snapshot/ Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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