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Policy 'guard rails' for Australian real income?

By Geoff Carmody - posted Wednesday, 26 July 2023

Would real income 'guard rails' help policy keep our economic train 'on track'?

As broad guidelines for policy outcomes, we've had a few Commonwealth-level 'guard rails'.

For example:

  • the Prices and Incomes Accord (ALP/ACTU agreement, 1983);
  • the 'Trilogy', capping taxation, spending and Budget deficit as percentages of GDP (1980s+);
  • the 'Trilemma' trifecta: 'affordable' power costs, high reliability, reduced emissions (2010s+).

The first maybe worked a bit, but also came with, and was followed by, really big economic reforms.

The second and third were/are 'virtue signalling' – for the third, for the more distant future.

'Guard rails' seem superseded now. It's all about Budget (incl beyond the Forward Estimates) and other policy 'promises' for the (often post-election) future.

In theory, we still have national inflation 'guard rails'. Agreements between Commonwealth governments and the RBA set 2-3% CPI 'guard rails'. Off that track, our economic train is derailed.

Can we afford a real income 'accord'? What about national real income 'guard rails'? These could centre on real net national disposable income per capita, as published quarterly by the ABS.


What drives that? Lots of things:

  • Australian productivity gains (a plus);
  • Australian population growth (plus or minus?);
  • Australian terms of trade (rising TOT a plus);
  • Australian net export volumes growth (ditto);
  • Australian net income from overseas investments growth (ditto);
  • Australian net liabilities to foreign lenders growth (a negative);
  • the value of the Australian dollar (say, TWI basis) – net benefits?;
  • and more.

This provides a framework for a micro-reform agenda. Or for more reform inaction frustration.

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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