Michael Keating

Michael Keating is a former Secretary of the Departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations. He is presently a visiting fellow at the Australian National University.

Michael's recent articles

MICHAEL KEATING-Trumps Re-election Prospects and the Economy.

The secular stagnation of the American economy over this century helped propel Donald Trump into the White House. So far President Trump is popularly credited with achieving some improvement in the US economy, but the economic outlook may well have deteriorated by the time of the next US election.

Morrison fiddles while Australia burns

I had the privilege of serving closely all of the Prime Ministers from Whitlam to Howard. Each of them sought this office because they wanted to pursue a policy agenda they thought would make Australia better. However, the evidence suggests that Scott Morrison is different his objective is seemingly limited to being there.

MICHAEL KEATING. Australia's Political Fault Lines.

This article takes issue with a recent article by John Menadue which argues that a largely unchallenged and powerful oligarchy is wielding untrammelled political power. Instead, a number of other reasons are proposed as to why our political parties have fragmented, and how that has made the achievement of necessary policy compromises more difficult. Nevertheless, there is a way forward for a progressive party.

MICHAEL KEATING . Economic Growth ,Redistribution and Climate Change.

Many pundits are arguing that if Labor is to become competitive at the next election it must focus on economic growth and jobs and abandon or at least downgrade its policies for income redistribution and to combat climate change. The evidence, however, is precisely the reverse. It is these policies that are the key to future economic growth and jobs.

MICHAEL KEATING- Scott Morrison and the 'Quiet Australians'

Prime Minister Morrison says that he will make sure that government services are reliable and responsive to the needs of those quiet Australians whose legitimate expectations are consistent with past practice and social conventions. What that means for the growing number of other Australians, who are less able to have a go and look after themselves, is apparently of no great concern.

MICHAEL KEATING. The Official View on the Economic Outlook.

The last twelve months has seen GDP per capita fall in Australia, but the Government and its key advisers still expect the economy to recover to trend rates of growth in the current financial year. Nevertheless, the Reserve Bank is still calling for more fiscal stimulus, while on the other hand the new Secretary of the Treasury has raised the possibility that wage growth (and by implication economic growth) may not return to past trend rates of increase because of structural changes in the economy.

MICHAEL KEATING. Key Questions about Snowy Hydro 2.0

The Morrison Government has reaffirmed its commitment to expand the Snowy Scheme as a key part of its strategy to meet its target for carbon emissions. However, independent estimates suggest that the cost and completion date is blowing out dramatically. In addition, it is argued here that the pumped hydro power from the Snowy Scheme will no longer be economically viable when coal-fired power is phased out.

MICHAEL KEATING. The Increasing Divergence between Income and Wealth

Although economic growth, inflation and nominal incomes have all been sluggish for the last several years, asset prices have increased substantially. One consequence of this much faster rate of increase in asset prices than incomes is that wealth, rather than income has become the key driver of increasing inequality.

MICHAEL KEATING. The Future of Monetary Policy

For the last forty years or more, economic orthodoxy has assigned the principal responsibility for macroeconomic demand management in the advanced economies to monetary policy. In recent years, however, inflation targets have been under-shot and incomes have continued to stagnate, while asset prices have boomed. This article discusses how these policy failures have led to increasing questioning of the future role of monetary policy, and the orthodox macroeconomic model on which it is based.

MICHAEL KEATING. What's Wrong with The Economy?

The headline economic news this week is that the IMF has revised down its forecast for the Australian economy. That should not have come as a surprise; it has been obvious for a few years that the Australian economy is not growing well. The underlying reason is low wage growth, and the real issue is why and what to do about it.

MICHAEL KEATING. Drought Assistance: Is it efficient? Is it fair?

Australia is currently experiencing a severe drought; possibly the most severe on record. Not surprisingly there have been calls for governments to do more. Some have even claimed that Australia lacks a proper drought policy. This article discusses the key features of an ideal drought policy, and what are the respective responsibilities of those being assisted mainly farmers and governments that are the principal source of any assistance.

MICHAEL KEATING The Fiscal Outlook: Is the projected Budget surplus sustainable and should it be? Part 2

With a stagnant economy, there are strong arguments for a fiscal stimulus package that would almost certainly postpone the return to Budget surplus for a couple of years. But what of the longer term? This article uses the Medium Term Fiscal Projections recently released by the Parliamentary Budget Office to query the longer-term fiscal outlook, and whether Budget surpluses are in fact sustainable without policy changes.

MICHAEL KEATING. Economic Update Part 1

The recent release of the National Accounts data confirms that the Australian economy is stuck in secular economic stagnation. This article argues that current policies are unlikely to restore economic growth sufficiently to allow Australia to realise its economic potential. The fiscal implications of this outlook for economic growth are further explored in a subsequent article to be posted tomorrow.

The US-China trade relationship: Why Trump's policies are doomed to fail

Donald Trump is deluded if he thinks that raising tariffs will reduce the US trade deficit. That deficit represents the fact that the US is spending more than it earns. Unless this fact is altered and Trump has increased the fiscal deficit the increase in US tariffs will automatically be offset by an appreciation of the exchange rate. Back in the 1980s Australian farmers and miners understood this elementary fact, and that is why they successfully lobbied to reduce tariff protection of Australian manufacturing.

How good is Scott Morrison?

By any standard, Scott Morrisons Government has a very threadbare policy agenda. Furthermore, the Government seems resistant to new ideas, whether they are from its backbench or the public service. According to Scott Morrison the role of the public service is limited to implementing government policy, which may help explain the thinness of his Governments policy agenda.

MICHAEL KEATING. Can we trust Scott Morrison?

Scott Morrison is on record as saying that no programs or services will be cut to pay for the tax cuts. The evidence, however, suggests that real government outlays will decline on a per capita basis, which would seem to mean that services will contract.

MICHAEL KEATING Why the Stage 3 tax cuts will need to be revisited.

In previous articles I argued that Stage 3 of the Governments proposed tax cuts should be opposed (see Pearls & Irritations, 30 May and 24 June). However, the Government appears to have the numbers to pass its proposed tax cuts as one package, with or without the support of the Labor Party. Nevertheless, the Grattan Institute in a report released on 30 June provide additional evidence as to why the Stage 3 tax cuts should wait. Grattans and my concern is that Australia will eventually find that these tax cuts cannot be afforded, and that the best alternative will be...

MICHAEL KEATING. Urban and Regional Policy

Spatial inequality has risen dramatically over Australia in the last forty years, and our cities are in many ways becoming less liveable. This article draws on the recent CSIRO report on the Australian National Outlook to summarise the major policy shift that is required affecting urban development to enable well-connected, affordable cities that offer more equal access to jobs, lifestyle amenities, education and other services.

MICHAEL KEATING. Australian National Outlook

A very significant new report was released last week on the Australian National Outlook. In this article, I summarise the reports discussion of the key challenges and policy choices that Australia faces, which will affect our future over the next fifty years.

MICHAEL KEATING. Lies, Damned Lies and [tax] statistics.

Last Saturday the Sydney Morning Herald (SMH) published an article, which purported to show that Middle and high-income earners will face some of the highest tax rates in the English-speaking developed world unless the Morrison governments $158 billion tax plan is passed in full when the Parliament returns next month. Unfortunately, I consider this article to be so misleading that it reminds me of the Mark Twain quote: There are lies, damned lies and statistics.

MICHAEL KEATING Budget Deficits: Good or Bad

Returning the Budget to surplus has been an article of faith in most Australian political dialogue for the last decade. However, with stagnant economic growth and the Governments proposed tax cuts, there is a real risk that Budget surpluses cannot be sustained. On the other hand, some people who are concerned that more public spending is needed to maintain services, have argued that these can be deficit funded. Instead this article argues that in the long run Australia will need to augment its taxation revenue if it wants to maintain the public expenditure required to achieve reasonable economic growth and...

MICHAEL KEATING Why Labor should oppose Morrison's tax cuts

Labor should oppose the second and third round of the Governments proposed tax cuts which only take effect after the next election. The future is too uncertain to lock-in these tax cuts now. Furthermore, reasonable projections raise strong doubts whether they can be afforded, and they do not represent the best way to increase economic growth.

MICHAEL KEATING Labor and the economy: Future policy choices?

Labor went into the recent election with a comprehensive economic plan. Many commentators have blamed Labors election loss on this plan, and its support for modest redistribution, thus raising the question of where does Labor go from here?...Labor needs to sell the message that redistribution is essential to sustain economic growth.

MICHAEL KEATING. The Morrison Governments Economic Policy

The Morrison Government has been returned and it is the Morrison Government which has been returned without the semblance of an economic policy. And this lack of a credible economic policy did not stop Morrison winning an election in which the economy appears to have been the deciding issue.

MICHAEL KEATING. This election offers a very real choice. Part 2

In a previous article (posted yesterday) I compared the Coalition and Labor fiscal plans. The credibility of these plans, as well as their value, depends significantly on whether the underlying economic parameters upon which the plans are based are sound, and equally how those plans will impact on economic activity and growth. These issues are discussed further below in the second part of this series comparing the two Parties fiscal plans.

MICHAEL KEATING. This election offers a very real choice. Part I

The two major issues in this election are climate change and the economy and cost of living pressures. In both cases the two major parties are offering very different strategies. In these two articles I will focus on the economic choice being offered to voters. In this article, I will compare the two Parties fiscal plans, and in a second part to be posted tomorrow I will comment on the likely economic impacts of these respective plans.

MICHAEL KEATING. The Budget: Part 2

The Budget is the most comprehensive statement of a governments priorities. It is the Budget that tells us specifically where the government intends to spend and how it intends to pay for that expenditure. In this article, I will seek to compare the Government and the Oppositions policies for taxing and spending, relying principally on last weeks Budget and the Oppositions reply.

MICHAEL KEATING. The Budget: Part 1

The Budget provides the opportunity for the Government and the Opposition to outline their respective economic strategies and their relative priorities. Interestingly, while there are significant differences between the two major political parties, there are also important similarities; probably reflecting the economic constraints which both parties have had to work within.

MICHAEL KEATING. The True State of the Economy

As usual the state of the economy and its management are likely to play a central role in the forthcoming election. With the election now only six weeks away and the Budget tomorrow, it is timely to consider the true state of the economy and its management.

MICHAEL KEATING. Why is our economic growth rate less than half its potential, and what to do about it?

The poor performance of the Australian economy, as further revealed in last weeks release of the National Accounts, raises questions about the longer-term economic outlook and whether the conventional diagnosis of our major economic challenges is correct. Notwithstanding resistance from the Government and some business interests, most economists believe that increased wage growth is essential. However, there is much less agreement about how and when that might occur.

MICHAEL KEATING. Labors policy of disallowing franking credit rebates: who will be affected, and by how much?

This article examines the claims that people with relatively modest incomes will be hard hit by Labors proposal to stop cash rebates of dividend franking credits to people whose taxable income is insufficient to make full use of those franking credits. Instead, this examination of the evidence shows that these claims are almost totally exaggerated.

MICHAEL KEATING. National Security: How Professional is the Advice?

Prime Minister Morrison and Minister Dutton have launched a scare campaign over the Medivac Bill, alleging that 1000 refugees will arrive in Australia from Manus and Nauru in a matter of weeks, which will in turn start the boats coming again. In an effort to gain some credibility for this claim, the Government has cited the Security Agencies in support. In this article I consider the capacity of the Security Agencies to make such judgements, and their professionalism in allowing themselves to be used in this way.

Housing affordability and Labors tax proposals (Revised)

Home ownership has become much less affordable. It is a major source of inequality both between generations and within generations. Housing cannot become more affordable without bringing down house prices relative to incomes. Labors tax proposals are intended to do just this. But is this the right time? House prices are allegedly falling already, and will further price reductions undermine the economy?

MICHAEL KEATING. The Prime Ministers Economic Plan

This week the Prime Minister promised to return the Budget to surplus, massively reduce net government debt, and create 1.25 million jobs over the next five years. However, there was no attempt to substantiate these promises, nor to argue that the promises were a logical outcome of his so-called Economic Plan. Indeed, apart from alleging he had a Plan, no further detail was provided. Accordingly, in this article I consider whether we can we believe the Governments promises for jobs and future budget surpluses.

MICHAEL KEATING. Equality: What is it and Why is it important?

Inequality has risen in most of the advanced economies, including Australia. It is damaging both the fabric of our society and economic growth. The Government appears to acknowledge that it should pursue equality of opportunity, but not outcomes. However, the Government has done little that would improve the equality of opportunity, especially relative to the magnitude of this challenge today and in the future.

MICHAEL KEATING. The Future of Democracy: Part 2

Yesterday in Part 1 of this article I discussed some of the possible explanations for the apparent loss of government capacity in most advanced democracies. Today in this second Part I will discuss some of the solutions that have been proposed to restore government capacity. This discussion has been influenced in part by Laura Tingles excellent Quarterly Essay, Follow the Leader: Democracy and the Rise of the Strongman, and by some of the responses to that Essay.

MICHAEL KEATING. The Future of Democracy: Part 1

At the start of a New Year, a year when Australia will have to elect a new government, it seems a good time to consider the future outlook for our system of democratic government. Overall there is a sense that citizens in many of the advanced democracies have lost confidence in the capacity of their governments to deliver. Many explanations for this loss of government capacity have been offered, and in this article, I will discuss what I consider to be the most important explanations as a contribution to the continuing debate about what is wrong with our system...

MICHAEL KEATING. The Best of 2018: Trickle down economics and the Emma Alberici article.

The ABC says that their decision to withdraw Emma Albericis article was because it represented an opinion for which there is allegedly no evidence. In fact there is plenty of evidence that increasing corporate profits will not lead to any increase in investment or employment and wages if aggregate demand continues to remain weak. Furthermore this evidence has been endorsed by the IMF, the OECD and others. Can the ABC cite anyone or provide evidence to the contrary, other than the ramblings of Scott Morrison and the Business Council?

MICHAEL KEATING. The Government's Mid-Year Economic and Fiscal Outlook Statement

As widely heralded by the Government in advance, the mid-year update of the economic and fiscal outlook shows an improvement in the budget balance. A larger surplus is forecast, starting in the next financial year and increasing thereafter. Whether this reflects good management, as the Government would have us believe, is a moot point. Equally, if the Government wants to maintain that forecast surplus, it is doubtful that there is much, if any, scope for new policy initiatives in the run-up to the election that would lower taxes or increase expenditure.

MICHAEL KEATING. Slow Wage Growth and Its Implications for the Government's Economic and Fiscal Forecasts

On Monday the Government will release the mid-year update of its economic and fiscal outlook. The Government hopes that the announcement of a return to budget surplus in 2019 will underpin its claims as an economic manager in the run-up to the May election. Clearly, however, that projected surplus will depend upon the assumptions employed, and it is contended here, and in advance, that we should be very suspicious of the most critical element in the government forecasts the wage forecast.

MICHAEL KEATING. The Future Agenda for Economic Reform

Given the lack of agreement about what are our key problems we shouldnt be surprised that economic reform is presently in the doldrums. But progress would be easier if the business community recognised that the old agenda to improve the flexibility and competitiveness of markets is now largely complete. Instead I argue that the new agenda should focus on reducing inequality by increasing education and skills. Furthermore, this will also help foster innovation by increasing the ability of the workforce to adopt and adapt to technological change.

MICHAEL KEATING. Economic Strategy for the 21st Century

Traditionally economists have tended to ignore distributional issues. These issues were considered to rest on value judgements, and to therefore be outside the purview of orthodox neo-classical economics. To the extent that distribution did enter the economists model, it was often presumed that there was a trade-off between equity and efficiency. However, it is argued here that the economic stagnation experienced over the last decade or more, is reason to reconsider the present economic strategy, which assumes that economic growth is largely driven by supply-side factors. Instead, the stagnation seems to be mainly a result of inadequate demand, and the...

MICHAEL KEATING. The US Economic Outlook

One of President Trumps proudest claims is how successful he has been in creating jobs and growth. Indeed, with typical restraint, Trump has boasted that the US economy, thanks to him, is now in the best shape of all time. But exactly how strong is the US economy, can it last, and what is most likely to be the US economic situation in two years, at the time of the next Presidential election?

MICHAEL KEATING. Privatisation: When does it work, and when doesnt it work?

Opponents of privatisation accuse it of being a key part of neo-liberal ideology. But blanket opposition to privatisation seems to me to be equally ideological. Instead, privatisation should be considered on a case-by-case basis. Accordingly, this article discusses the criteria against which the possible privatisation of a government service and its implementation should be considered.

MICHAEL KEATING. The Future Demands for Government Revenue

At The Australia Institutes Revenue Summit on Wednesday I presented a paper that showed that the Federal Governments future economic and budget forecasts are most likely wrong. Instead, I showed why a modest increase in the ratio of revenue to GDP will be necessary over the next couple of decades, if we want to maintain economic growth and a socially inclusive society. Below I summarise that paper.

MICHAEL KEATING. The Change from Turnbull to Morrison: What Difference has It Made?

Now that Scott Morrison has passed the fifty-day landmark as Prime Minister, this article considers what has changed since the demise of Malcolm Turnbull and what difference Scott Morrison will make in resolving the major policy challenges that Australia is facing.

MICHAEL KEATING. The Medium-Term Economic Outlook

The last decade has been characterised by economic stagnation in almost all the advanced economies. But President Trump and Prime Minister Scott Morrison are now promising a rosy future, with the US and Australian economies supposedly returning to past rates of growth. If the two leaders are right that will make an enormous difference, affecting many issues ranging from the mood of their electorate to the future capacity of their governments. But personally I remain sceptical that a return to a sustained higher rate of economic growth is likely, for the reasons given below.

MICHAEL KEATING. This is what policymakers can and cant do about low wage growth (The Conversation, 17.08.18)

The crisis really is in real wage growth. Reserve Bank Governor Philip Lowe, 2017 Increased inequality and low wage growth are constraining economic growth. But why is wage growth so low? And how should policymakers respond?

MICHAEL KEATING. Why Trumps economic policies are doomed to fail.

President Trumps protectionist policies have been widely criticised and rightly so. What is more surprising is the lack of analysis as to why America has a long-standing trade deficit, and the contradictory and self-defeating nature of President Trumps overall economic strategy.

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