The Treasurer is missing the mark
by Richard Denniss
[Originally published in the Australian Financial Review, 02 March 2020]
In the summer of 2010, devastating floods hit Queensland killing 33 people, causing billions of dollars in damage, shutting coal mines, and knocking an estimated $30 billion off GDP. The then Labor Government’s promise of a budget surplus was washed away too.
Fast forward to the devastating bushfires of 2020 and a very similar picture emerges. While ground-zero was further south, both disasters wreaked havoc on export industries, on regional tourism, and cost the budget billions.
Mother Nature makes a mockery of budget forecasts. Despite the Government saying it accepts the science of climate change, the Treasury continues to ignore the growing costs of fires, floods and droughts on the Commonwealth budget.
Treasury’s Intergenerational Report (IGR) will be out soon and if it’s anything like the last four, it will provide far more detail on the future costs of Youth Allowance than on the costs of climate disasters. While Joe Hockey’s 2015 IGR states that ‘extreme fire weather has increased, and the fire season has lengthened’ his report provides no estimate of what this will cost the budget.
Australia’s climate has already changed. Summer is longer, the fire season is longer, coral bleaching is more frequent, and our rainfall patterns have changed significantly. Just as forecasts of productivity growth are good for GDP and the budget bottom line, forecasts of more extreme weather are bad for long-run economic growth, bad for the budget bottom line and—as we saw this summer—catastrophic for the wellbeing of our citizens.
While Joe Hockey’s IGR provided no quantitative analysis of the future costs of climate change, the 2015 report at least conceded the importance of considering environmental damage, stating that: ‘Over-used, damaged or depleted resources could reduce Australians’ wellbeing and the ability of future generations to rely on the environment for economic activity.’
Five long, hot summers after those words were written, our most recent Treasurer, Josh Frydenberg, lost the plot when Shadow Treasurer Jim Chalmers suggested that in addition to measuring GDP we need to consider new measures of wellbeing. A suggestion the Treasurer deemed ‘laughable’. Embarrassingly, he even went on to say that: ‘Labor hasn't delivered a surplus since 1989 so it should surprise no one they're going to look around for some other way to measure economic output.’ Perhaps no one has told Josh Frydenberg that none of the last three Liberal Treasurers have delivered a budget surplus either.
No economist thinks GDP is an accurate or effective measure of national progress, for the simple reason that it’s not. GDP doesn’t distinguish between billions spent on cleaning up fires and floods, or billions spent preparing for and preventing those same disasters.
While the Treasurer was quick to shoot down Labor’s suggestion that we need to better-measure wellbeing, he is yet to mock the OECD who say: ‘Societal progress is about improvements in the well-being of people and households. Assessing such progress requires looking not only at the functioning of the economic system but also at the diverse experiences and living conditions of people.’
Even more embarrassingly for the Treasurer, is that it was when Peter Costello was Treasurer, that Treasury developed its own ‘Wellbeing Framework’ which their website still reminds us, is because Treasury’s Mission Statement is ‘to improve the wellbeing of the Australian people’. It’s in the very first sentence.
The Prime Minister won’t be happy. He has spent the last month saying that the reason he doesn’t want to commit to 2050 emissions reduction targets is that there’s no point having long run goals without plans to meet them. But when Labor proposes new measures to track progress towards the number one goal of Treasury, Josh Frydenberg says its ‘laughable’ while making belittling comments about yoga.
Data makes clear that the climate has changed, and ten years of failed budget forecasts makes clear the economy has changed too. If you accept the science of climate change, you accept that spending on disasters will rise and that spending on prevention should rise too. While both cleaning up and preventing disasters count towards GDP, disasters have a hugely negative impact on peoples’ wellbeing. Labor wants to measure that. The Treasury wants to measure that. But the Treasurer mocks the idea. It is a big call from a guy who is yet to boost wages, boost productivity or meet his goal of a budget surplus.
Richard Denniss, Chief Economist, The Australia Institute @RDNS_TAI