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. 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.

MICHAEL KEATING. The Future Budget Outlook - a comment on the Parliamentary Budget Office Report on Trends affecting the sustainability of Commonwealth taxes

Last week the independent Parliamentary Budget Office (PBO) released a new report on Trends affecting the sustainability of Commonwealth taxes. The key conclusion is that taxation receipts are likely to trend down in future relative to GDP, given current policy settings and recent consumption and structural trends. On the basis of its detailed analysis of past revenue trends, the PBO finds that there is a likelihood that taxes on consumption will continue to trend downwards, taxes on capital will be flat or trend downwards and an increasing proportion of labour income will be taxed concessionally through the superannuation system. The...

MICHAEL KEATING. Tax Cuts, the Economy and the Next Election

Last week the Government got its personal income tax package through the Parliament. The Government estimates that these tax cuts will cost the Budget $144 billion over the next decade. The Government has not, however, provided us with convincing evidence that the nation can afford this generosity and how it proposes to pay for these cuts while still returning the Budget to a sustainable surplus.

MICHAEL KEATING. What country seeks to go to war with its banker? (Repost from 30/1/2018)

This article supports Hugh Whites conclusion that the US is unlikely to succeed in fighting China for primacy in Asia. The US has been living beyond its means for a long time, and has depended on foreign finance, and especially Chinese finance, to sustain its living standards. Challenging China would require sacrifices from the American public that they are ill-prepared to make. Accordingly, it is very risky for Australia to continue to base its foreign and defence policies on the presumption that the US can be counted on to maintain its position in Asia without substantial change. What country seeks...

MICHAEL KEATING. How Useful and Reliable are the Budget Projections?

The Treasurer wants us to believe that the Government has a credible plan to restore the Budget to a surplus and cut taxes at the same time. This conclusion is based on the projections for revenue, expenditures and the budget balance incorporated in this years budget. However, both Ross Gittins and I have separately criticised the credibility of these budget projections. I also agree with Gittins conclusion that the Treasurers unworthy intention is to leave non-economists with the impression that everything is under control and on the improve, and even economists and econocrats can be left with a false sense...

MICHAEL LAMBERT. Review of Fair Share by Stephen Bell and Michael Keating , Part 1

The topic of economic inequality has become an area of strong research and academic interest , and Fair Share: Competing Claims and Australias Economic Future, by Stephen Bell and Michael Keating, published by Melbourne University Press, adds to an illustrious group of authors who have tackled this complex subject from a range of perspectives. (These include but are not limited to British economist Anthony Atkinson; French academic Thomas Piketty; Austrian historian Walter Scheidel; American economist, Branko Milanovic; and Nobel prize winner, American economist Joseph Stiglitz).

MICHAEL KEATING. 2018 Budget comment; Part 3: The Turnbull Governments Priorities as revealed in the Budget

In this final Part 3 of my comments on the 2018 Budget I discuss what this Budget reveals about the Governments values and priorities, and its performance compared to those targets.

MICHAEL KEATING. Budget commentary, Part 2: Sustainable tax cuts for low-income households

Part 1 of this series of Budget comments criticised the credibility of the Governments projected return to a budget surplus and argued that the proposed tax cuts were therefore not in fact sustainable. In this second part I will argue that nevertheless some tax relief targeted at low-income households should be supported, and other alternative sources of revenue should be found to return the budget to surplus and make those tax cuts sustainable.

MICHAEL KEATING. 2018 Budget Comment (Part 1)

This years comment on the Government 2018 Budget is in three parts. Today, I comment on the proposed tax cuts, which are the signature feature of this years Budget. I conclude that there are real doubts about whether those tax cuts are sustainable in the longer-run. The second part of this series discusses why tax relief focussed on low-income earners is desirable and then considers the change in policies required to make that tax relief sustainable. The final Part 3 of the series will consider the governments overall priorities as revealed in the Budget.

MICHAEL KEATING AND JON STANFORD. Australias strategic risks and future defence policy; Part 2: Future defence strategy, capability and submarines

In this second article we discuss the need to develop a defence strategy that involves shifting from a force structure designed for coalition warfare to one optimised for the independent defence of Australia. We focus on the requirement for new submarines, given that these are the assets best suited for the prosecution of asymmetric warfare against a stronger power.

MICHAEL KEATING and JON STANFORD. Australias strategic risks and future defence policy (Part 1 of 2)

Part 1: Australias strategic environment and the US alliance Two years ago the government selected the French company Naval Group to design Australias future submarine (FSM). We were highly critical of the decision at the time for a number of reasons, including the excessive cost. In particular, we are concerned by the lengthy delivery schedule for the submarines, a decade or more after the present Collins class submarines are due to be retired, resulting in a dangerous capability gap. In this series of two articles we explore how Australias strategic environment has evolved since the decision on the FSM...

MICHAEL KEATING. Why Australia Needs A Stronger Revenue Base

Earlier this week the Australia Institute released an open letter signed by 48 eminent Australians calling for an increase in taxation. As we might have expected, the Treasurer, Scott Morrison, without any reflection, dismissed this call for higher taxes as a numpty of an idea, adding that The idea that you increase taxes to grow the economy is stupid. This article argues that instead it is the Treasurer who is wrong, and that full budget repair will not be possible over the medium term unless deliberate action is taken to increase government revenue.

MICHAEL KEATING- Wages, Profits and Economic Growth.

This article summarises the analysis in a new book, Fair Share: Competing Claims and Australias Economic Future, which examines the interrelationship between the stagnant economic growth experienced by most developed countries over the last decade and the increasing inequality in the distribution of income.

Trickle down economics and the Emma Alberici article.

The ABC says that their decision to withdraw Emma Alberici's 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? The following is a repost of Michael Keating's article of...

MICHAEL KEATING. Who Will Pay for Trumps Wars?

This article supports Hugh Whites conclusion that the US is unlikely to succeed in fighting China for primacy in Asia. The US has been living beyond its means for a long time, and has depended on foreign finance, and especially Chinese finance, to sustain its living standards. Challenging China would require sacrifices from the American public that they are ill-prepared to make. Accordingly, it is very risky for Australia to continue to base its foreign and defence policies on the presumption that the US can be counted on to maintain its position in Asia without substantial change. What country seeks...

MICHAEL KEATING. The Trump Tax Cuts and Economic Growth

The forecast positive impact of the Trump tax package mainly results from a temporary incentive to bring forward business investment. This is irrelevant to the cuts in company tax rates proposed by the Turnbull Government, and cannot be used as vindication for their policies. Furthermore, the Trump tax package fails to address the fundamental flaws in the US economy, and in the longer term, has a negative impact on US economic growth.

MICHAEL KEATING. Tax Reform and the Need to Raise More Revenue- A REPOST from August 2017

This article considers the future Budget outlook and argues that the key issue for tax reform is how best to raise the additional revenue that will be needed. The article builds on Ian McAuleys recent post arguing that well-designed taxes can actually improve economic resource allocation, and this article further argues that if the additional revenue is spent on tackling inequality this can increase economic growth.

MICHAEL KEATING. Trickle-Down Economics and a Company Tax Cut

Despite the evidence of the last few decades that trickle-down economics doesnt work, big business and its apologists in the media are calling for a company tax cut to stimulate investment. The reality, however, is that increased investment is principally in response to increasing aggregate demand. The required increase in aggregate demand in turn requires less inequality and faster wage growth, not bigger business subsidies.

MICHAEL KEATING. National water reform- A REPOST from September 28,2017

According to the Productivity Commissions draft report on National Water Reform, Australia is now viewed internationally as a world leader in water management. Nevertheless, these reforms continue to be challenged by special interests. In particular, the history of poor investment in irrigation continues, encouraged by the comfortable expectation that governments will not enforce the requirement to recover irrigators share of the costs through cost-reflective water pricing.

MICHAEL KEATING. Inequality, wages and economic growth- A REPOST from July 31,2017

Changes in inequality and in the relationship between wages and productivity help explain the poor economic performance of many advanced economies in this century. Interestingly the Governor of the Reserve Bank indicated that Australia might be facing the same risks of inadequate wage growth, although he felt that Australias monetary policy framework is better placed to deal with this world than some others.

MICHAEL KEATING. The 2017-18 Mid-Year Economic and Fiscal Outlook

This Mid-Year review of the economic and fiscal outlook contains no new surprises. However, the balance of risks is that the outcomes will be worse than predicted. Clearly on the Governments own projections, the nation cannot afford income tax cuts in the foreseeable future. Instead what this review reminds us, is just how threadbare this Governments economic and fiscal strategies actually are.

MICHAEL KEATING. The Productivity Commission on more effective government. Part 2 of 2.

The Productivity Commissions findings regarding the effectiveness of Australias public services reflect the findings of many previous reviews. Fundamentally a change of culture is needed in favour of well-calculated risk taking and, I would add, greater independence based on the pursuit of evidence through comprehensive program and policy evaluation.

MICHAEL KEATING. The Productivity Commission on more effective government. Part 1 of 2.

This article, the first of two which discuss the Productivity Commissions recommendations for more effective government, focuses on how to improve Commonwealth-State relations, and fiscal disciplines and accountability. The conclusion is that the Commissions recommendations are for the most part disappointing. They fail to take account of the practical difficulties in better matching taxable capacity with expenditure responsibilities, and the extent to which governments are already held to account for achieving budget targets.

MICHAEL KEATING. Tax Cuts: What can we expect? Part 2 of 2

In Part 1 of this series, posted yesterday, the conclusion was that restoration of a sustained Budget surplus would require a combination of expenditure cuts and tax increases. This second Part 2 finds that the projected swing from Budget deficit to surplus requires a swing of 3 per cent of national income. It then explores the scope for expenditure cuts and tax changes to achieve this swing. The conclusion is that most of the required swing will have to be achieved by a net increase in taxation revenue relative to GDP.

MICHAEL KEATING. Tax cuts - what can we expect? Part 1 of 2.

The evidence suggests that Malcolm Turnbull just doesnt have the fiscal room to responsibly offer income tax cuts, which means it was very irresponsible to raise expectations in this way. Part 1 in this series of two articles examines the relationship between taxes and economic growth, and the demands upon the revenue to repair the Budget. In the following Part 2, the scope for expenditure cuts and the future of tax reform is discussed. The conclusion is that Australia will need to increase the share of tax revenue relative to GDP.

MICHAEL KEATING. Should VET be contestable?

The introduction of contestability into training markets is often cited as a prime example of the failures of privatisation. However, the totality of the evidence is rarely examined in support of this allegation. This article aims to fill this gap. It finds that a contestable training market can fail if not properly regulated, but now that Australias training market is being properly regulated, the quality of training is being preserved, while competition is reducing costs and increasing choice and responsiveness to customer needs.

MICHAEL KEATING. Trumps Economic Policies: Part 2 of 2

In Part 1 of this series of two articles, yesterday I examined the impact of President Trumps economic program on the American economy. Todays article discusses the impact of the Trump economic program on the rest of the world, and Australia in particular. The key danger is that Trump will further encourage a rise in protectionism, that will damage the foundations of the open economy that in the last seventy years has delivered the biggest rise in living standards in human history. However, continuing economic growth inevitably involves economic transformation, and maintaining support for the open economy will depend upon...

MICHAEL KEATING. Trumps Economic Policies: Part 1 of 2

President Trumps economic policies have so far received much less attention than his foreign and national security policies. The examination here and in a following article concludes that the economic policies are based on fundamental contradictions and are therefore bound to fail. This failure will be felt by Americans and by the rest of the world.

MICHAEL KEATING. Can Parliament control Government Expenditure?-The Use of the Advance to the Minister of Finance

The High Court has upheld the Governments decision to use the Advance to the Minister of Finance to pay for its survey of attitudes regarding same-sex marriage, and notwithstanding that funding for this survey was unlikely to gain parliamentary approval. Furthermore, the Court found that while the Finance Ministers decision must be formed reasonably, he is not obliged to act apolitically or quasi-judicially in determining access to the Advance. My concern is that this High Court decision may have tipped the balance too far against parliamentary control of government expenditure, which is a key feature of our democracy ever since...

MICHAEL KEATING. Contestability and Defence Advice

Major defence decisions have long been made with a minimum amount of consultation. That is certainly true of the recent decision to give the French Naval Group a monopoly over the design and build of Australias next submarine. The way this decision was made seems to reflect a long-standing view that civilians are not competent and cannot be allowed to question military expertise. This post suggests this is not good enough as many relevant considerations in defence planning and acquisitions range well beyond military expertise.

MICHAEL KEATING. Is it legitimate to pay for a postal plebiscite using the Advance to the Minister of Finance?

This article questions the legitimacy of by-passing the need for Parliaments approval by using the Advance to the Minister of Finance to pay for the Governments postal plebiscite regarding attitudes to marriage equality for same-sex couples.

MICHAEL KEATING. Electricity Prices.

Electricity prices are a hot topic at present. Amidst the welter of claim and counter-claim as to what is the cause of higher electricity prices, there has been remarkably little use of the available evidence.

MICHAEL KEATING. Why Blame Neo-Liberal Economics: A Response

My previous article on Why Blame Neo-Liberal Economics, which argued that neo-liberal economics was not a main cause of increasing inequality, drew an unusually large and mostly critical response. While it is not feasible to respond to all the detailed points that my many critics have raised, in this response I propose to focus on two big issues: (i) what is neo-liberal economics and how does it influence policy outcomes, and (ii) why has inequality increased since the 1980s. I will also briefly discuss the policy implications that flow from my analysis.

MICHAEL KEATING. Why Blame Neo-Liberal Economics?

The claim is frequently made that neo-liberal economic policies are responsible for an increase in inequality. However, no supporting analysis is ever offered to sustain such claims; the obvious reason being because they reflect the authors imagination and prejudices.

MICHAEL KEATING. An appreciation of Ian Marsh.

Ian Marsh who passed away last week, was a highly original thinker with the genuine curiosity of a true intellectual. Ian liked to describe himself as one of the last Deakinite Liberals. This apt description reflected: Ians contributions to industrial policy, and especially how the state can help foster innovation, and Ians preference for a more consensual negotiated approach to policy making, such as applied during the first decade of the Australian parliament.

MICHAEL KEATING. The British Election and Brexit

Mrs. May called the election ostensibly to strengthen her mandate in the forthcoming Brexit negotiations. Although she failed to strengthen her majority, it is doubtful if the election result will have any impact on the Brexit negotiations.

MICHAEL KEATING. The 2017 Budget - A welcome change in direction. Part 1 of 2

This Budget represents a welcome change in direction. Forget the politics, it deserves to be supported. This latest Coalition Budget finally reflects a realistic appraisal of Australias fiscal needs.

MICHAEL KEATING. The 2017 Budget - A welcome change in direction. Part 2 of 2

Budget repair was never going to be easy. That is one reason why it has taken so long with quite a few false starts. While some of the individual decisions in this Budget are debateable, overall the quality of the policy changes is good. Probably a greater concern is that some very significant policy issues havent been adequately addressed.

MICHAEL KEATING. Mid-Year Economic and Fiscal Outlook, 2016

The Governments Mid-Year Economic and Fiscal Outlook (MYEFO) released yesterday contains few changes and no surprises. The critical question is whether the path back to surplus is actually credible, especially given the many failed promises in the past. This post examines the governments economic forecasts that underpin the budget numbers and whether the governments approach to Budget repair is really viable.

MICHAEL KEATING. Donald Trump and the ANZUS Alliance - Quo vadis series.

Quo vadis - Australian foreign policy and ANZUS. Summary.Dennis Richardson, the Secretary of the Defence Department, recently informed us that the ANZUS Alliance was ongoing, irrespective of who was President of the United States. Of course, this is true, but so what? What was the point of Richardsons admonition, and what was he hoping to achieve? It would be most unfortunate If Richardsons comment was a crude attempt to stop the much-needed debate in Australia about how we should adjust to changing circumstances in the Asia-Pacific region and develop a more independent foreign policy as advocated in numerous articles posted...

MICHAEL KEATING. Superannuation Tax Concessions

Almost everyone agrees that Budget repair will only be possible if both the revenue side of the Budget is reviewed as well as the expenditure side. In that context, the tax concessions for superannuation have loomed as a prime target. Indeed, the Treasury Statement of Tax Expenditures shows that the annual cost of the present superannuation concessions is almost $30 billion and rising. Furthermore, it appears that 37 per cent of the total value of these concessions flows to people in the top decile of the income distribution.

MICHAEL KEATING. The Future Outlook for Economic Reform

In a recent article in the Sydney Morning Herald, Ross Gittins pronounced that we are staring at the end of the era of economic reform. It has ended because it is seen by many voters as no more than a cover for advancing the interests of the rich and powerful at their expense. Gittins then goes on to cite a lot of evidence that people are disaffected. Thus the size of the support for Trump in the US and Brexit in the UK, and to a lesser extent, the success of minor parties favouring more economic autarchy in Australia,...

MICHAEL KEATING. Taxation Reform

Taxation reform is a continuing and topical issue. With a new government and the need for budget repair I am reposting below an earlier article in the policy series by Michael Keating. John Menadue Oliver Wendell Holmes, the great American jurist, is reputed to have said, I like to pay taxes. In this way I buy civilisation. However, in contrast to Holmes noble ideal, too often today we hear people railing about the burden of taxation, as though it is in some way an unfortunate even illegitimate imposition upon ourselves, our economy, and our way of life. Lower...

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