Working less could be the answer to one of our biggest problems

By MILLIE MUROI, Economics Writer

Inflation has been the talk of the town for the past few years, but now that it’s paled enough for interest rates to start coming down, it’s the dreaded ‘P’ word – and our seeming lack of progress on it – that’s resurfacing as a threat to our living standards.

Still, there’s only a handful of people who are noticing it and like talking about it: among them, the Productivity Commission, which couldn’t ignore the issue even if it wanted to.

But if it’s such a huge deal, why don’t most people care? Probably because it’s not easily seen or measured.

Plenty of headlines have lamented our failed attempts at boosting productivity (a supposed need to work harder?). Apparently we’ve been suffering from a decade of it – and it matters because more than 80 per cent of our real income growth (income adjusted for inflation) over the past three decades has been thanks to how much more productive we’ve become.

But measuring how much better we’ve become at making things and providing services with the same amount of workers and time is hard – especially if you can’t put a dollar figure on the outcome.

It’s fairly straightforward, for example, to measure how many more bananas or cows we’re pumping out. But what about the quality of those bananas and cows? How do we put a figure on how much better quality those products are? Even worse: how do we measure how much better we’ve become at providing services like healthcare? Is a surgeon rushing through more surgeries always a better outcome?

Because of this, it’s hard to pinpoint exactly where – and how much – we’re going wrong.

And at an individual level, there’s not a lot we can do.

The biggest leaps in productivity – pumping out more or better-quality things with the same amount of resources (like workers and time) – have come from technological developments like the invention and spread of the internet, electricity or the steam engine.

Sure, a handful of individual geniuses helped bring these things to life, but a majority of workers are limited in their ability to do things more efficiently, often by the tools, rules and conditions they’re forced to work with.

One suggestion made by the productivity boffins in their latest push (triggered by Treasurer Jim Chalmers’ request for reform recommendations) in the economy-wide brainstorm on how to overcome the productivity road block, is shaking up the way companies are taxed.

Specifically, the commission is looking at ways to prod businesses to invest more (something that has been lacking in Australia for quite a few years). Specifically, it will consider tax incentives for businesses to spend on things like better equipment, tools and technology – things which help workers to save time and produce more or better things without having to work harder.

A barista, for example, who doesn’t have to share a machine with their colleague, may be able to serve more coffees, and an accountant with access to better software provided by their company may be able to slash the time it takes to crunch numbers for their clients.

Cutting the 30 per cent corporate tax rate (an option currently on the table according to Productivity Commission boss Danielle Wood), though, is probably not a good move unless there’s a way to guarantee those big businesses won’t just pocket the extra profit or pay it out to shareholders.

It’s probably also bad news if it gives big companies – which already dominate many sectors of the economy – more power, making it difficult for small and medium-sized businesses to challenge them and drive innovation.

However, tax breaks for new investment which, in theory, should encourage firms to invest, seem less effective in Australia compared with many other countries, according to the Reserve Bank.

While big businesses might be keen for such changes, they probably don’t provide bang for our buck, and they come at a cost to the government’s budget.

This makes it more difficult to achieve some of the commission’s other reform priorities such as improving school student outcomes and upskilling the workforce. The better-educated we are, and the more we’re able to build on our skills, the better we become at doing things.

Under-resourcing of schools has been a well-documented issue – and probably a key factor behind Australia’s lagging performance academically. It’s also something the government will struggle to improve if its budget is tight.

Cutting red tape is another area of reform being examined by the commission. This is a good thing – especially when it comes to the net-zero transformation. It’s clear that climate change and the increased prevalence of natural disasters will hamper our ability to work. And without making it easier for Australian businesses to transition to cleaner energy, we’ll be left behind in the global shift, and fail to act on a hugely promising area of growth.

Speeding up approvals for new energy infrastructure is a good example from the commission of how we can improve productivity. Instead of being bogged down by lengthy approval times, businesses can get on with investing in transformative projects aimed at harnessing some of our natural gifts: sunlight, wind, and other cleaner forms of energy.

And while they are just lofty aims for now, other focus areas including supporting government investment in preventing health problems (rather than waiting to treat them after they arise) and improving our uptake of digital technologies, should make us more productive by ensuring a healthy workforce and helping us harness the power of developments such as artificial intelligence.

But these are all things we’ve known for some time.

It’s also about bosses and government departments listening to the lesser – but consequential – suggestions made by their employees.

If you ask any worker what the most time-consuming and unnecessary parts of their job are, they’ll almost always have an answer. Most teachers, for example, point to the growing and excessive administrative work they’re required to do which reduces their ability to do what matters for students – and what will actually affect students’ outcomes.

Yet, at company and department level, there’s usually little to no engagement with employees about what they think could be done better – and even when there is, a dismal amount is actually done about it.

A key determinant of the Productivity Commission’s success in improving productivity will be to compel top decision makers and bosses to act on all of these reform ideas. Paradoxically, legislating a shorter working week seems radical, but – as with the laws which brought in the eight-hour working day – could boost productivity.

There have been multiple studies showing shorter work hours improve workers’ wellbeing, focus and efficiency. Having less time to get things done often pushes us to lock in and get more done in a shorter amount of time.

And if this isn’t the case, shorter work hours will push bosses to implement the productivity-boosting changes required to support their workers to work more efficiently and improve productivity in the longer term.

Productivity growth isn’t always about our need for incessant growth in material things. It’s just as much about making our lives easier by giving ourselves the tools and conditions to help us work less for the same outcomes.

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After 50 years, we're back to the glory days of full employment

I promise I’ll stop talking about the surprising election result if you let me make one last point. There was a hidden factor that helps explain why Labor did so well despite all our grumbling about the cost-of-living crisis.

It’s a factor for which the Morrison government, the Albanese government and even the Reserve Bank deserve more thanks than they’ve received. A factor without which it’s highly likely Labor would have been tossed out.

Long before most of us were born – even I am only just old enough to remember it – Australia enjoyed something called “full employment”. In the years between the end of World War II in 1945 and the early 1970s, the rate of unemployment rarely got above 2 per cent of the labour force.

When it did rise above 2 per cent for some months, it was called a recession. For the long period in which it was rarely above 2 per cent, it was called “full employment”.

Full employment has never meant an unemployment rate of zero. Why not? Because at any time there will always be many thousands of workers moving from one job to the next, and education leavers taking a month or so to find their first proper job. So, that’s nothing to worry about.

But the unemployment rate started edging up from the beginning of the 1970s, and by the time the Whitlam government was dismissed in November 1975, it had reached 5.4 per cent. For reasons far more complicated than the various mistakes of Gough Whitlam, the era of full employment was over.

And although economists kept a return to full employment as their ultimate objective – as did the Reserve Bank – it was never seen again. Well, not until August 2022, when unemployment got down to a low of 3.5 per cent for several months. That was its lowest in “almost 50 years”.

That’s higher than 2 per cent, but the labour market has changed a lot in half a century, and these days there’s probably a lot more “structural” unemployment – where the unemployed live in different cities to the job vacancies.

There’s general agreement among economists that 3.5 per cent is now a good level to regard as full employment. Remember that, over the past 50 years, unemployment has averaged about 6.5 per cent.

So how, after all this time, did the rate of unemployment suddenly drop to the level of full employment? It was perhaps the only benefit from all the trouble we had using lockdowns to restrict the spread of COVID-19.

Federal and state governments spent hugely to hold the economy together during the lockdowns and so, when they ended and people were let loose in the shops, restaurants and live entertainment venues with all the money they’d been unable to spend, the economy boomed.

Employment grew enormously and unemployment fell, with most of the new jobs being full-time. It helped that, at the time, our borders were still closed, so none of the new jobs went to people who’d come to Australia just to take the job.

All this happened under the Morrison government, with unemployment bottoming out at 3.5 per cent just three months after the May 2022 election. So then-treasurer Josh Frydenberg gets the credit for our return to full employment.

By then, however, the booming economy had caused consumer prices to take off. So the Reserve Bank did what it always does to slow the rate at which prices are inflating: it starts jacking up interest rates to force people with mortgages to cut their spend on other things. As people spend less, businesses don’t raise their prices as much.

But here’s the trick. Normally, the Reserve loses little time in pushing interest rates way up. Spending takes a big hit, businesses lay off workers, unemployment shoots up and the rate of price inflation quickly falls back to normal, after which the Reserve soon cuts interest rates back to normal.

Normally, but not this time. Treasurer Jim Chalmers and the Reserve agreed that this time care would be taken to limit the rise in unemployment and thus not stray far from full employment. To this end, the Reserve would raise interest rates slowly and no higher than absolutely necessary.

We can now see this softly, softly approach has worked. As interest rates have risen, employment has continued growing, with the rate of unemployment rising only to about 4 per cent, where it’s stayed for 14 months.

By now, however, the rate of inflation has fallen back to the Reserve’s target range of 2 to 3 per cent, so it’s slowly cutting interest rates back to a more normal level.

So how did this effort to hang on to full employment affect the election? Had the cost-of-living crisis been accompanied by many people losing their jobs, the pain would have been much greater, and the likelihood of Labor itself being shown the door would have been high.

Instead, almost everyone kept their job, while some were able to move to a full-time job or a second job to help make ends meet.

Our avoidance of recession – unlike other countries, starting with New Zealand – has come at a price, however. Although our smaller and slower increase in interest rates didn’t hurt so acutely, the period of high rates – about three years – kept homebuyers in pain for longer.

But I think it was well worth it. If you think coping with of the cost of living is tough, try doing it on the dole. A well-functioning economy is one that provides jobs for (almost) everyone who wants one. And that’s what our fully employed economy has provided us with for the past three years.

The proportion of all working-age people with a job is 64 per cent, its highest ever. That’s the solid proof we’re fully employed. Women have done best in gaining jobs in recent years. Fifty years ago, only 36 per cent of women were participating in the paid labour force. Today it’s 63 per cent.

It’s strange we could have passed judgment on the performance of the Albanese government this month without most people realising how well the jobs market has done on its watch.

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Want greater productivity? Set wages to rise by 3.5 pc every year

Stand by for yet more talk about productivity. With the election over and Labor more comfortably ensconced on the Treasury benches, Treasurer Jim Chalmers has pronounced that top priority can turn from fixing the cost of living to fixing our poor productivity performance.

We’ll get the first of the Productivity Commission’s reports today on things we can do to improve our ... productivity. Well, let’s hope something comes of it. I’ll believe it when I see it.

Forgive my scepticism, but the great and good have been sermonising on the need for productivity improvement for well over a decade and, so far, the rate of improvement has gone down, not up.

A few years back, the Australia Institute reminded us that just about every economic change the Abbott-Turnbull-Morrison government made came with an assurance it would lead to greater productivity. It didn’t.

(But usefully, the think tank defined productivity as the amount of output of goods and services that can be extracted from each unit of input of labour or physical capital.)

So, at the opening of open season on claims about productivity, let’s start by spelling out a few clarifying facts. First, over the past decade or so, productivity improvement has slowed throughout the developed world. Thus, if we manage to turn ours around, we’ll have achieved something none of the other rich countries have managed.

Second, almost everything we hear implies that if productivity isn’t improving, it must be the government’s fault. So productivity must be something supplied by the government and, if the supply is inadequate, the government must produce more.

Nonsense. Productivity is determined by how efficiently every workplace is organised. Since the great majority of workplaces are privately owned, if the economy’s productivity isn’t improving from year to year, it’s primarily because the nation’s bosses aren’t bothering to improve it.

Remember this next time you see the (Big) Business Council issuing yet another report urging the government to do something to improve productivity. What businesspeople say about productivity is usually thinly disguised rent-seeking.

“You want higher productivity? Simple – give me a tax cut. You want to increase business investment in capital equipment? Simple – introduce a new investment incentive. And remember, if only you’d give us greater freedom in the way we may treat our workers, the economy would be much better.”

Why do even economists go along with the idea that poor productivity must be the government’s fault? Because of a bias built into the way economists are taught to think about the economy. Their “neoclassical model” assumes that all consumers and all businesspeople react rationally to the incentives (prices) they face.

So if the private sector isn’t working well, the only possible explanation is that the government has given them the wrong incentives and should fix them.

Third, businesspeople, politicians and even economists often imply that any improvement in the productivity of labour (output per hour worked) is automatically passed on to workers as higher real wages by the economy’s “invisible hand”.

Don’t believe it. The Productivity Commission seems to support this by finding that, over the long term, improvement in labour productivity and the rise in real wages are pretty much equal.

Trouble is, as they keep telling you at uni, “correlation doesn’t imply causation”. As Nobel Prize-winning economist Daron Acemoglu argues in his book Power and Progress, workers get their share of the benefits of technological advance only if governments make sure they do.

Fourth, economics 101 teaches that the main way firms increase the productivity of their workers is by giving them more and better machines to work with. This is called “capital deepening”, in contrast to the “capital widening” that must be done just to ensure the amount of machinery per worker doesn’t fall as high immigration increases the workforce.

It’s remarkable how few sermonising economists think to make the obvious point that the weak rate of business investment in plant and equipment over the past decade or more makes the absence of improvement in the productivity of labour utterly unsurprising.

Fifth, remember Sims’ Law. As Rod Sims, former boss of the competition commission, often reminded us, improving productivity is just one of the ways businesses may seek to increase their profits.

It seems clear that improving productivity has not been a popular way for the Business Council’s members to improve profits in recent times. My guess is that they’ve been more inclined to do it by using loopholes in our industrial relations law to keep the cost of labour low: casualisation, use of labour hire companies and non-compete clauses in employment contracts, for instance.

Sixth, few economists make the obvious neoclassical point that the less the rise in the real cost of labour, the less the incentive for businesses to invest in labour-saving equipment.

So here’s my proposal for encouraging greater labour productivity. Rather than continuing to tell workers their real wages can’t rise until we get some more productivity, we should try reversing the process.

We should make the cost of labour grow in real terms – which would do wonders for consumer spending and economic growth – and see if this encourages firms to step up their investment in labour-saving technology, thereby improving productivity of workers.

Federal and state governments should seek to establish a wage “norm” whereby everyone’s wages rose by 3.5 per cent a year – come rain or shine. That would be 2.5 percentage points for inflation, plus 1 percentage point for productivity improvement yet to be induced. Think of how much less time that workers and bosses would spend arguing about pay rises.

Governments have no legal power to dictate the size of wage rises. But they could start to inculcate such a norm by increasing their own employees’ wages by that percentage.

The feds could urge the Fair Work Commission to raise all award wage minimums by that proportion at its annual review. If wages of the bottom quarter of workers kept rising by that percentage, it would become very hard for employers to increase higher wage rates by less.

A frightening idea to some, maybe, but one that might really get our productivity improving.

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The RBA is spooked by pay rises. It should relax

By MILLIE MUROI, Economics Writer

When the Reserve Bank meets next week, it will probably cut interest rates. But it will be some time before it is comfortable enough to lower them to a level that isn’t grinding down economic growth.

Already, some economists have slammed the bank for being slow to cut rates, saying it’s causing more cost-of-living pain than necessary for people with home loans.

Now that the bank’s preferred measure of inflation is within its 2 per cent to 3 per cent target range and the economy has slowed to a crawl (with the risk of a further slowdown as US President Donald Trump’s tariffs hit home), those criticisms are growing louder.

So, why is the Reserve Bank still determined to keep the economy growing below its potential? A lot of it comes down to the bank’s phobia of pay rises – which, like many modern-day fears, served us well in the past but aren’t so useful today.

One of the first rules we learn in economics is that the prices we pay are determined by the balance between supply and demand: when supply of a good or service outstrips demand for it, prices fall, and when demand exceeds supply, prices rise.

Then, we learn all the reasons why this rule isn’t that simple. For example, if a business has a lot of power (maybe it has few competitors), it can charge more for its goods and services.

On the other hand, when customers hold more power, they can drive prices down. How do you think the Australian government manages to negotiate cheaper prices for medicines it buys from other countries? By acting as a single buyer, representing millions of Australians, which gives it a lot more bargaining power than if you or me, individually, tried to negotiate with the pharmaceutical giants. This is what’s called a “monopsony”.

Put simply: prices are determined by the balance of supply and demand – but also the power balance between buyers and sellers.

Our wages are determined in a similar way, which is what the Reserve Bank has been worried about. At almost every interest rate decision in the past couple of years, the bank has mentioned the strong labour market as a reason for its reluctance to cut rates.

Think of your wage as the price of the work you supply. Workers sell their labour to companies which buy – or employ labour. This is called the labour market.

When there’s more demand for workers than there is supply, we have a labour shortage and unemployment tends to be low. This is the position we’ve been in for the past few years, when unemployment dropped to a record low of 3.4 per cent and has remained historically low at roughly 4 per cent.

While this might seem like a good thing, the Reserve Bank is worried.

Its biggest concern is inflation, which it’s worried could follow the same path it did in the 1970s. That is, prices could spike back up if unemployment stays low and businesses give us big wage rises which, in turn, could feed into higher prices.

How do we know the bank is biting its nails? Because of how carefully it’s treading. While inflation hit nearly 8 per cent in 2022, that figure has fallen a lot over the past two years. Yet in that time, the central bank has cut interest rates only once (and raised them six times).

To be fair, employment is growing robustly (a huge 89,000 additional Australians were employed in April compared with March) and job vacancy data shows there’s still a big worker shortage.

But a “wage explosion” is unlikely given the labour market has changed radically since the 1970s.

Wages have finally started growing faster than inflation, but it’s been at a relatively modest pace of 3.4 per cent over the year – and following a year-and-a-half in which wage growth fell short of price rises.

So, what explains the Reserve Bank’s worries of excessive wage growth?

For one thing, the bank relies on a relatively neoclassical view of how the economy works, one in which demand and supply (in this case, of labour) determine price levels, including wages, with individual firms having little control over how much to pay their workers. It’s why the bank is constantly surprised by the strength of the labour market – and waiting (with little avail) for wages to spring up out of it like a jack in a box.

Meanwhile, this lack of a wage explosion comes as no surprise to a lot of labour economists, including Professor Emeritus David Peetz from the Carmichael Centre.

That’s because the neoclassical view of economics tends to assume everyone has roughly equal bargaining power, while many labour economists acknowledge that isn’t the case – especially in recent years.

Peetz argues that real wages – that is, wages adjusted for inflation – have been held back in Australia in recent decades because workers’ power to negotiate has been persistently eaten away.

“Workers have lost a lot of power since the last wages explosion in the 1970s,” he says, noting that from 2014 to 2022, government policies such as WorkChoices have taken away workers’ bargaining power.

The Reserve Bank isn’t totally blind to this. Their economists have written about bargaining power and its relationship with wages. But their justification of interest rate decisions suggests they don’t give much weight to it.

While the bank might worry the current skills shortage could lead to a wage spike and further inflation as in the 1970s, Peetz points out employers now rarely feel compelled to hand out pay rises in response to skills shortages.

In 2023, Jobs and Skills Australia, a federal government agency, asked employers what they do in response to a skills shortage. Only 1 per cent said they would adjust how much they paid their workers.

Why? Because there’s not as much pressure to do so when only one in seven Australian workers are part of a union (it was one in two during the 1970s). The threat of industrial action such as strikes is much smaller. Only 100,000 working days were lost in 2021 compared with 6.3 million working days lost to industrial action in 1974.

While workers in 1974-75 managed to win wage rises of 10 per cent accounting for inflation, workers went backwards by 3 per cent in 2021-22.

This is because of several changes including legal changes in recent decades which have made collective bargaining (in which workers across an entire industry band together to negotiate) less common than enterprise bargaining, in which workers negotiate directly with their employer.

Wage increases won through enterprise bargaining apply only to workers at a specific business or site, limiting those workers’ negotiating power as well as how far the wage rise, if won, can spread. While a wage rise at one company might put some pressure on another company to do the same, in practice, this kind of flow-on impact is limited.

While changes under the Albanese Labor government such as its same job, same pay policy have started to hand more power back to workers, rampant wage rises – and a resurgence in inflation – are far from a big threat to the economy. The Reserve Bank can, and probably should, relax a bit, too.

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Whatever happened to the cost living we were so worried about?

Talk about the dog that didn’t bark. Cast your mind back to the distant days of the election campaign, and you’ll dimly remember how often we were told how polling revealed that the only subject hard-pressed voters were interested in discussing was the cost of living.

Treasurer Jim Chalmers stuck to this rule relentlessly, repeatedly assuring us the economy had “turned the corner” (a focus-group-tested line if ever there was one), but Peter Dutton had trouble keeping to the script.

He was supposed to keep asking whether we felt better off than we did three years ago and, knowing our answer would be “no”, put all the blame for this regression onto Labor. But he couldn’t resist reminding us of the supposed rising tide of crime and risk of invasion.

Am I the only person to have noticed that, in all the many thousands of words commentators have spilled in explaining Labor’s landslide win, there’s been nary a mention of the cost of living? Had it been the only issue in voters’ minds, surely there’d have been a swing away from Labor, not towards it?

And what about all those outer-suburban seats full of families with massive mortgages? Why didn’t any of them think it was time to give the other side a try?

I think the explanation for the big swing to Labor was far simpler than the pundits think. People’s worries about the cost of living were forgotten after the arrival of a new and far more pertinent issue: voters got their first good look at Dutton and the kind of politician he was and, overwhelmingly, said “No thanks”. Come back Albo, all is forgiven.

So, what happened to the cost of living? Were the pollsters deluded in believing voters wanted to think about little else? Why were voters’ minds so easily diverted to another issue? Where are we at with the cost of living? Is it done and dusted, have we really turned the corner, and what are the prospects?

When people complain about the cost of living, they’re really saying they find it a struggle to balance the family budget from fortnight to fortnight. The trick is that, while in recent years they’ve been finding it particularly difficult, even in normal times it’s a fairly common occurrence.

So, complaining about the cost of living is like complaining about the weather – an ingrained habit. In summer, it’s always too hot; in winter it’s always too cold. Complaining about the cost of living is our default setting.

If nothing too bad is happening, pollsters asking about the big problems the politicians should be dealing with will always be told the cost of living’s a worry. It’s always up near the top of the list. When household budgets are particularly tight, it’s always at the top.

But introduce some more novel cause for concern, and the cost of living is quickly supplanted.

The thing about of the cost of living, however, is that it’s like an ailment. It’s the symptoms you complain about, not necessarily the root cause of those aches and pains.

When you ask people why they’re complaining about the cost of living, they usually reply that the rise in prices is shocking. How do they know? They see it at the supermarket every week.

It’s true. Overall, supermarket (and other) prices are always rising. But what matters is the rate at which prices are rising – that is, the rate of inflation. For about the past 30 years, governments, their econocrats (including the Reserve Bank) and economists generally have accepted that if the rate of inflation is averaging between 2 and 3 per cent a year, that’s nothing to worry about.

When Labor came to power in May 2022, the annual inflation rate, as measured by the consumer price index, was 5.1 per cent. By the end of that year, it reached a peak of 7.8 per cent.

The rate has slowed continually since then. By the end of September last year, it had slowed to 2.8 per cent – that is, back within the desired range. By March this year, it had slowed to 2.4 per cent. The more demanding “underlying” or core measure of inflation has slowed to 2.9 per cent.

So yes, in that sense, we have turned the corner, as Chalmers keeps telling us. But it’s not that simple. You have to ask why the rate of increase in consumer prices has slowed so much. A fair bit of it is the slowing – and, in some cases, actual falls – in overseas prices that are beyond our control.

But where home-grown prices are concerned, the main reason they’ve been rising more slowly is that the Reserve Bank has been raising interest rates to put the squeeze on households with mortgages, reducing their ability to keep spending so much on other goods and services, and so reducing the upward pressure on prices.

The Reserve made its first increase in the official interest rate just a few days before the May 2022 election – a clear signal to voters that the inflation problem got going under the previous, Coalition government.

After the election, the Reserve raised interest rates a further 12 times, increasing the official rate by a total of 4.25 percentage points to a peak of 4.35 per cent in November 2023.

See what happened? It’s not the pain of rapidly rising prices that’s caused people to keep complaining about living costs, it’s the pain from the high mortgage interest rates the Reserve has been using to get prices rising more slowly.

But in February this year, the Reserve cut interest rates by one click, of 0.25 percentage points. This was a sign it regarded the job of getting the inflation rate down as almost done. It was also a pre-election signal that rates would be falling further in the next term of government.

Indeed, it’s likely to cut rates by another 0.25 per cent click next week, with a further two or three clicks to come after that, greatly reducing the cost-of-living pain for households with mortgages.

Time for us to move on to other economic worries.

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Ross Garnaut: Prophet with a sunny view of our better future

Economist Paul Krugman’s endlessly repeated maxim that “productivity isn’t everything but, in the long run, it’s almost everything” has deluded far too many of the economics profession’s conventional thinkers.

It’s a throwaway line that should be thrown away.

It implies that any economic objective other than improved productivity is hardly worth worrying about. Such as? Distributional fairness aka “intergenerational inequity”. Tell that to the 40 per cent of voters under 40, and see how far you get.

It implies that the structure of our economy never changes, nor does the planet we live on. So the single-minded pursuit of improved productivity will somehow either stop climate change or magically deliver us a zero-carbon economy without any need for government intervention.

Or maybe the proviso “in the long run” is saying that our great, great-grandchildren will be able to look back on the clean-energy transition as little more than a blip. What a pity we live in a succession of short runs, not the long run.

A more realistic view is that, should the world fail to stop climate change, life will become almost unlivable, much of the economy will be stranded assets, and every spare cent we have will be spent shifting from one part of the country to another, and on buying hugely expensive water and permanent air conditioning.

A less cataclysmic future would see climate change get a lot worse before the major economies finally got their act together and ended the use of fossil fuels. This, of course, would lead to much unemployment in our coal and gas industries and much loss of export income.

Our future, no matter which way you envisage it, doesn’t sound very inviting. Much of our “natural endowment” of coal and gas deposits will be worthless and our “comparative advantage” in flogging them off to other countries will have disappeared. Do you still believe our government should be only worried about improving productivity?

What we need is some sort of economist prophet who can help us overcome this existential threat, not an army of blinkered economists telling us all that matters is raising our material standard of living.

Fortunately, among the profession’s abundance of unproductive thinkers is a lone prophetic, and so productive, thinker, Professor Ross Garnaut, who sees not only how we can minimise the economic cost of the transition to clean energy, but also what we can do for an encore. What we can do to fill the vacuum left by the looming collapse of our fossil fuel export business (which, by chance, happens to be our highest-productivity industry).

Because economists are such incurious people, Garnaut seems to have been the first among them to notice that, purely by chance, Australia’s natural endowment also includes a relative abundance of sun and wind.

Until now, we thought these were non-resources and of little or no commercial value. It took Garnaut to point out that, in a post-carbon world, they had the potential be our new-found comparative advantage. To provide us with a whole new way of making a bundle from exports, while generating many new jobs for the miners to move to.

When you add the possibility of structural change to the rules of conventional economics, you get what’s a scary thought for many economists: maybe our natural endowment isn’t ordained by the economic gods to be unchangeable through all eternity.

Maybe there are interventions fallible governments should be making to move our economic activity from one dimension of our natural endowment to another. Maybe such a switch is too high-risk and involves too many “positive externalities” (monetary benefits than can’t be captured by the business doing the investing) for us to wait for market forces to take us to this brave new world.

Maybe changing circumstances can change the nature of our comparative advantage in international trade, meaning the government has to nudge the private sector in a new direction.

It was Garnaut who first had the vision of transforming Australia into a “Superpower” in a world of ubiquitous renewable energy. And it was he who uncovered the facts that made this goal plausible.

Exporting our fossil fuels is cheap, whereas exporting renewable energy would be much more expensive. So whereas it was more economic to send our coal and iron ore overseas to be turned into steel, in the post-carbon world it soon will be more economic to produce green iron and other green metals in Australia and then export them.

In a speech last week, Garnaut acknowledged that, in its first term, the Albanese government began to lay the policy foundations for the Superpower project. The economic principles are set out clearly and well by Treasury’s “national interest framework” for A Future made in Australia, released after last year’s budget, he says.

The re-elected Albanese government has already restated its commitment to the project. Garnaut says there’s much more for the government to do in creating the right incentives for our manufacturers to re-organise and expand.

Research sponsored by his Superpower Institute finds that Australian exports of goods embodying renewable energy could reduce global emissions by up to 10 per cent. So we can contribute disproportionately to global decarbonisation by supplying goods embodying renewable energy that the high-income economies of Northeast Asia and Europe cannot supply at reasonable cost from their own resources.

This would “generate export income for Australians vastly in excess of that provided by the gas and coal industries that will decline as the world moves to net zero emissions over the next few decades”.

Garnaut concludes: “The new industries are large enough to drive restoration of growth in Australian productivity and living standards after the dozen years of stagnation that began in 2013.”

The present fashion of obsessing with productivity improvement for its own sake is counterproductive and probably won’t achieve much. We should get our priorities right and focus on fixing our most fundamental problems – unfairness between the generations, action on climate change and fully exploiting the opportunities presented by our newfound strength in renewable energy – and let productivity look after itself.

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Game theory explains why the Liberals lost - and how they can win

By MILLIE MUROI, Economics Writer

Elections are one of the biggest – and real-life – displays of strategic thinking. There are winners and losers, set choices and strategies galore.

They’re a dynamic affair with a million moving parts, but Labor’s thumping victory in the latest federal election can be explained by a relatively new branch in economics called “game theory”, which focuses on the strategic actions of two or more players in a given situation.

More importantly for the Liberals, game theory is the key to winning back votes in three years’ time (and one shadow treasurer Angus Taylor is very familiar with).

Game theory is often applied to business, but ANU lecturer in politics, philosophy and economics Dr William Bosworth says it works remarkably well when thinking about the Australian political landscape.

In your day-to-day life, you may have noticed close competitors such as Coles and Woolworths tending to set up shop right next to each other, and McDonald’s and Hungry Jack’s cosying up to each other on the same street.

It’s because these businesses know the best place to capture the largest number of customers is as close to the centre of all their potential burger-loving, or grocery-buying, customers as possible.

In game theory, this is known as the “Nash Equilibrium”, where neither company can improve its customer reach by changing location – especially given where their competitor is. The further away one moves from the centre, the more customers they give up to their competitor.

It’s also why the two biggest players in Australian politics – Labor and Liberal – sit relatively close to the centre of the political spectrum and to each other: it’s where they’re able to appeal to the largest number of voters. Labor is generally seen as a centre-left party economically and socially, while the Liberals are seen as centre-right.

That’s not to say they mimic each other entirely. Just as Hungry Jack’s promises their burgers are better, political parties must also ensure they highlight their perceived strengths. That’s why we saw Anthony Albanese whip out his Medicare card and Peter Dutton pump fuel so many times throughout the election: they both had different packaging for their agendas.

But University of NSW professor of politics and economics Dr Gabriele Gratton pointed out ahead of the election that Labor and the Coalition shared some fairly similar policies.

Both, for example, promised to take the heat out of cost of living, one by slashing the government’s tax on petrol (called the fuel excise), the other by promising to (once again) pay a slice of our electricity bills. They also both wanted to cap international student numbers to dampen immigration, and matched each other on various spending promises, including investment into Medicare and major road upgrades across the country.

Why is this? It’s because, like the supermarkets and burger chains maximising their customer reach, both Albanese and Dutton wanted broad appeal to voters. The closer they were to the centre, the more voters they could pull from their opponent while still being closer to those on the left (for Albanese) and those on the right (for Dutton).

So, why did Albanese come out so clearly on top?

A large part of the reason is that the game has changed. More specifically, the “customers” they were trying to attract (voters) have skewed more progressive – especially as younger people: Gen Z and Millennials – together became the biggest group of voters for the first time.

That meant the “middle” or “average” voter was probably more left-leaning than at previous elections, prioritising issues such as climate action and gender equity.

“You can quite confidently say that the median voter has shifted a generation [younger],” Bosworth says.

Neither party was especially ambitious, but it was clear the Coalition’s focus was misplaced.

Not only did the Liberals fail to read the room on issues such as working from home (which the majority of the population clearly supported), but they also went hard on conservative policies such as their anti-woke agenda.

While some people claim the Liberal Party needs to firm up support among its traditional voters by moving further to the right, the outcome of the election shows that’s the wrong direction.

Parties further right of the Liberals, such as One Nation, won just 8 per cent of the national vote, while the Greens (despite losing seats) claimed a record 11 per cent – and Labor secured an overwhelming majority.

Trump’s victory in the US might seem like evidence that right-wing policies appeal to voters, but compulsory voting in Australia means there’s little to be gained by appeasing the extreme ends of the political spectrum in a bid to get the most passionate supporters out to vote.

Since everyone votes here, the key – or the optimal strategy in game-theory lingo – is to appeal to the average voter. If the Liberals want to win more than half the national vote, staying put (or moving further right) is a dead-end move.

“It’s clear that if the Coalition wants to win the next election, they have to move closer to the centre,” Bosworth said. In doing so, the Liberals have a better chance of taking back some of the voters they lost to Labor this election.

One big problem for the party is that they’ve lost many of their moderate Liberals over the past few years, instead ending up with a party leaning further to the right. They have also failed to fix their well-aired “women problem”, still noticeably represented mostly by men.

The two front-runners for the party’s leadership after Dutton’s defeat are Angus Taylor (who is in the party’s “right” faction and, coincidentally, wrote a thesis applying game theory to analyse English pubs) and the slightly more moderate Sussan Ley.

While neither Taylor nor Ley are particularly inspiring, there is an argument that a party led by the slightly more moderate Ley could be better placed as the Liberals try to return with a more centrist focus (while also at least signalling that the party is ready to embrace female leadership). The party must also be prepared to preselect more moderate candidates to rebuild its pool of talent without collapsing further right.

Of course, the Liberals’ resounding defeat this election wasn’t just about their suboptimal positioning. It was also about execution of a campaign during which they backflipped on policies such as ending working from home for public servants, all but abandoned their nuclear policy, and sent mixed messages through conflicting spokespeople.

It’s easier said than done, but they must stem the splintering within their party and deliver a more coherent and cohesive message.

A swing back towards more conservative views among Australian voters is not out of the question. But the long-term trend seems to be younger generations being broadly more progressive than their predecessors.

Without acknowledging this and moving their business closer to the centre, no amount of soul-searching will help the Liberals win the political game.

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The Liberals won't win without more women and fewer oldies

If the Liberals have any sense, they won’t waste too much time blaming their shocking election result on Peter Dutton, Donald Trump, Cyclone Alfred, the party secretariat, an unready shadow ministry or any other “proximate cause”, as economists say. Why not? Because none of these go to the heart of their party’s problem.

The Liberals’ problem is that Australia has changed but their party hasn’t. They’re like someone still driving a Holden Commodore: a great car in its day but looking pretty outdated today.

In other words, the Libs’ problem is structural, not merely cyclical. It can’t be fixed just by finding a more attractive leader – not unless that leader has the authority to make what many Liberal MPs and party members would regard as radical changes.

Liberal leaders have been aware of their party’s two key problems for some years without facing up to them. The first is their “women problem”. While Labor has put much effort into increasing the proportion of women among its parliamentary members and ministers, the Libs have been quite half-hearted about it, refusing to use quotas to speed up the process.

I’m sure Labor people have been sincere in believing a roughly 50-50 split should become the norm, but I’m equally sure they’re aware of the political advantage that comes with making sure they attract the votes of at least half the female voters, and preferably more.

Go back far enough and you find Australia’s women slightly more attracted to the Coalition than Labor. Not these days. The Australian National University’s Australian Election Study, which uses polling of people after they’ve voted – at the democracy sausage stage – found that, in the previous, 2022 federal election, while 38 per cent of male respondents voted for the Coalition, only 32 per cent of females did.

I’d be surprised if that disparity was much reduced on Saturday, and not surprised if it had increased. Surely a party incapable of attracting its share of the female half of the voting population is a party without a bright future.

Did you notice Monday’s photo of Labor’s just-elected federal members in Brisbane? Seven broadly smiling, youngish women. A lot of them who’d just taken seats from the Libs.

And, as I’m sure you have noticed, all the teals are women. Could there be a message in there somewhere? If so, Labor’s got it, but the Libs haven’t yet.

Another relevant finding from the study of the 2022 election: whereas only 9 per cent of men voted for the Greens, for women it was 16 per cent. My guess is that a lot of those women voting Greens were young.

You surely can’t have missed the news that Saturday’s was the first election in which the great bulge of Baby Boomers has finally been outnumbered by the Millennials and Gen Z, which now account for 40 per cent of the electorate.

With some Zoomers yet to reach voting age, the younger share of the electorate can’t fail to grow as the Boomers start falling off the twig. (Last week I had to go to Melbourne for the funeral of a mate. I stayed with another mate whose wife died last year. Could mortality be catching up with the invincible Boomers?)

So let’s shift from gender to age. The 2022 electoral study observes that “across the democratic world, younger voters tend to prefer parties and candidates of the left and centre-left more so than older voters”. But each Australian election study since 1987 has found that as age increases, so, too, does Coalition support.

In 2022, however, the Coalition’s share of the vote fell in almost every age group, but especially among the youngest age groups. Question is: will today’s younger voters drift to the Coalition as they age, as previous younger generations have?

Probably not. As the Millennials aged between 2016 and 2022, the Coalition’s share of their votes actually fell from 38 per cent to 25 per cent. In both 2019 and 2022, only 26 per cent of Zoomers voted for the Coalition, with 67 per cent voting for the Greens or Labor.

“No other generation records such skewed preferences at similar early stages of the life course,” the 2022 study concludes.

What could possibly cause the latest batch of younger voters to be so down on the Coalition that they may never grow more conservative as they grow older?

Well, one candidate is “intergenerational inequity”. Home affordability has been an issue for yonks, but never has it been as big as it was this time. “How come our parents had little trouble buying a home of their own while we’re finding it almost impossible?”

Until now, politicians have shed only crocodile tears for first home buyers – with the most openly unsympathetic of them being the Liberals’ second Menzies, John Howard.

But home affordability is just one of the ways the system of taxes and benefits has been biased in favour of the well-off elderly – the self-proclaimed “self-funded retirees” – at the expense of younger, working taxpayers.

Who was it who did most to advantage better-off single-income families who could afford private schools and private health insurance? The same John Howard. He rejigged the system to benefit the Liberal heartland, but now that heartland has resigned from the party.

Why? Many reasons, no doubt, but one that stands out: the Liberals’ lip-service-only support for action to reduce climate change. Turns out women worry more about climate change than men, and young people worry more than oldies – for obvious reasons. Thinks: I’ll be dead before it gets intolerable.

Ever since Labor’s Julia Gillard introduced a carbon tax in 2012, the Libs, while denying they were climate-change deniers, have taken the low road: don’t worry about climate, just stop electricity prices rising.

If the Liberals want a future, a future with more votes from women and younger people, the place to start is getting fair dinkum about climate change.

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Dutton's election campaign rout lets RBA off the hook

Reserve Bank governor Michele Bullock must be breathing a quiet sigh of relief now the Albanese government has been triumphantly returned to office. If you can’t think why she should be relieved, you’re helping make my point.

There was something strange in all the accusations hurled at the Labor government for doing little or nothing to ease the great cost-of-living pain so many voters had suffered over the three years of its first term in office.

And that was? Never once did Peter Dutton mention the Reserve Bank. The tough state of the economy was 100 per cent Labor’s fault. And never once did Anthony Albanese or Treasurer Jim Chalmers say what they could have: “Don’t blame us, it was the central bank wot dun it.”

“And there was nothing we could do to stop it doing what it did,” Labor didn’t say. “Had we tried to counter what the Reserve did in increasing mortgage interest rates by a massive 4.25 percentage points, it would just have raised rates even further.” (As every macroeconomist knows, such behaviour is dignified by the title “the monetary policy reaction function”.)

So Albo & Co. did what the system required of them: they stood there and took all the abuse on their own chin. Since the Reserve was granted independence of the elected government in the mid-1990s, the deal between the elected government and the Reserve is that the Reserve says nothing about the government’s conduct of fiscal (budgetary) policy, and the government says nothing about interest rates.

Albanese’s quite unexpected landslide win will tempt many people to start rewriting history in favour of the victors. “Ah yes, Labor was never really in any bother and there was never much risk that all the cost-of-living pain could see it tossed out.”

Bollocks. Before the formal start of the campaign in late March, the polls showed there was a big chance Labor would be tossed out. The Coalition was ahead in the polls, and Dutton’s personal approval rating was high.

It was only as the five-week campaign progressed, and voters got their first close look at Dutton and started listening to what he was saying, that the Coalition’s lead in the polls started sliding down and voters’ comparison of him with Albanese started shifting in Albo’s favour.

Both sides knew from their research that the cost of living was the only issue voters wanted to know about. So both sides vowed to talk about little else. Labor stuck to that resolve, but Dutton couldn’t make himself.

The truth is, throughout his long career in politics, Dutton has shown little expertise or interest in the management of the macroeconomy. He’d been a copper, who saw his life’s vocation as to “protect and serve”. He was on about the threat to our security from abroad and the threat on our own streets. And, as the campaign progressed, that’s what he kept returning to.

He was the wrong person to be leading the Coalition at a time when economics was all that mattered. He had a powerful (though misleading) line asking people if they felt better off than they were three years ago, but failed to keep pushing it. This left Labor room to push its antidote: “don’t worry, the worst is over, interest rates have started coming down, and soon everything will be back to normal”.

But what’s that got to do with the Reserve Bank? Just this: had the Coalition succeeded in getting Labor sacked, Labor would rightly have blamed the Reserve’s tardiness in cutting interest rates for that sacking, and its side of politics would have gone for at least a decade seeing the central bank as the enemy.

But don’t think the Coalition would have loved the Reserve forever. It would have thought: “If those blasted bureaucrats can trip up Labor, next time they might trip us up”. Get it? Both sides would have been looking for ways to clip the Reserve’s wings.

Two points. First, central bank independence and democracy make awkward bedfellows. They mean the Reserve has all care and no responsibility. Much as they may want to, the voters can’t sack Michele Bullock. The only people voters can take the Reserve’s performance out on is the elected government.

Second, the post-pandemic price surge is the first big spike in inflation in the 30 years since the rich economies adopted the policy of handing over primacy in the day-to-day management of the economy to an independent central bank with an inflation target.

So, only now has this regime been stress-tested. This test has revealed how hard it is for a democratically elected government to carry the can for a central bank taking a seeming eternity to use higher interest rates to get the inflation rate back into the target zone.

The truth is, all the seeds of the inflation surge were sown before Labor was elected in May 2022. But Labor didn’t waste its breath trying to mount that argument. The retort would have been obvious: surely three years is long enough for any macroeconomic problem to be fixed?

Good point. When Labor took over, the annual inflation rate stood at 5.1 per cent. By the end of 2022, it had peaked at 7.8 per cent. But by this time last year – 15 months later – it was down to 3.6 per cent. And now it’s back in the 2 to 3 per cent target range.

So, with consumer spending almost flat, the past year has seen inflation do what it could always have been expected to do: keep falling back to target. So why did the Reserve start cutting the official interest rate only in February?

The first rule of using interest rates to manage demand (spending in the economy) is that, because rate changes affect demand with a “long and variable” delay, you don’t wait until inflation reaches the target before you start cutting rates.

But the Reserve has ignored this rule because of its fear of a wage explosion that was never likely to happen. Its “blunt instrument” has hurt voters with mortgages more than was needed. Fortunately for the Reserve, however, its mismanagement hasn’t got an innocent government kicked out.

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Young people will decide who's the next PM

By MILLIE MUROI, Economics Writer

By now, it’s no secret that young people are the biggest voting group. While no demographic fits neatly into either the Labor or Coalition camp – or completely agrees on any given issue – it will be a relief for many young Australians to know they are more than an afterthought this election.

Neither party has been exceedingly visionary, but as Prime Minister Anthony Albanese and Opposition Leader Peter Dutton jet around the country in a final scramble to cement their messages in the dying days of the election campaign, one leader will be tossing and turning far less when they hit the hay every evening.

For the past few decades, voters have tended to be “rusted on” to the major parties. That is, there wasn’t much anyone could do to change their minds in the weeks leading up to election day – and “safe” seats, where one party was practically guaranteed to win, were actually safe.

But young people have thrown a spanner in the works. Not only do Gen Z (born after 1996) and Millennials (born between 1981 and 1996) make up more than 40 per cent of the national vote – outnumbering Baby Boomers for the first time – but they are increasingly pulling their support from the major parties.

The Greens have taken a bigger bite of the youth vote in recent elections, and the Australian Electoral Study – which has surveyed voters after every election since the mid-1980s – has found support for the major parties more widely has dropped to the lowest level it's seen.

That may also be thanks to the rise of independent or teal candidates who have offered platforms more in tune with issues such as climate change – especially hurting the Coalition in wealthier, inner-suburban electorates.

While there is diversity within the youth cohort, there are certain trends, shared experiences and grievances that have clearly shaped the major parties’ campaigns – and which will ultimately determine the result of the election.

Issues such as housing affordability, climate change and cost of living consistently dominate polling among young people.

With house prices continuing to slip out of reach of younger Australians (which their parents and grandparents are also seeing secondhand), both Labor and the Coalition have put housing policies front and centre in their campaigns.

Their demand-side policies are not especially helpful for dampening house prices because they increase the number of people bidding for a new home (and therefore push up house prices). Labor has guaranteed to allow all first home buyers to buy a place with a 5 per cent deposit, and the Coalition has promised to allow first home buyers to withdraw some of their superannuation and reduce their income tax by deducting their mortgage payments.

But these policies are short-term carrots that both parties know will appeal to first home buyers – many of whom are younger.

After facing a red-hot rental market, wage growth failing to keep up with the growth in everyday prices, and a pandemic which could have a long-term drag on their career progression, a seemingly lower hurdle to enter the housing market may be welcome for many young people.

It’s also more immediate than policies aimed at increasing supply, such as the Housing Australia Future Fund aimed at building thousands of homes, and the Coalition’s less direct promise to invest in housing infrastructure such as water, power and sewerage systems, which are more effective, longer-term responses. Both Labor and the Coalition know voters do not have the patience to wait (more) years to be able to crack into the housing market.

While cost of living has persistently been the number one issue for voters, one party has taken the extra step when it comes to easing pressures for young people. Labor’s promise, for example, to wipe 20 per cent off student loans, is a compelling proposition – especially for recent graduates who have racked up record levels of debt amid higher course fees. It’s a policy that has strong support – even among young Coalition voters.

The risks for Labor, of course, include the tendency of voters to “punish” or kick out whoever is in power during hard times, even if those hard times had little to do with the government, and the possibility of young people – who tend to be more progressive – choosing to back minor parties such as the Greens who have pushed for more radical policies such as capping rents.

While there’s recent evidence some young men are leaning more to the right and holding more conservative views than older generations, young people are, for the most-part, “issues-based” voters, meaning action on top offenders: housing affordability, climate change and cost of living are crucial to gaining their support.

Albanese, while arguably lacking extraordinary charisma, speaking ability or policy ambition, has done the basics well. He has relentlessly hammered home announcements on urgent care clinics, affordable medicines, childcare and fee-free TAFE, many of which matter to many, but especially young people.

By contrast, the campaign period has revealed some of the cracks and weaknesses in the Coalition. While their fuel excise cut is undeniably one of the policies with the strongest cut-through this election, they have been slow in releasing their costings, backflipped on their policy to end work-from-home for public servants, and only spoken about their nuclear policy when prodded.

Meanwhile, Albanese has consistently demonstrated he has a solid grasp of how systems, from health to roads and renewables, work – focusing on small improvements but never backing down or straying from his core policies.

Albanese has also connected more effectively in the social media space where young people tend to reside, at least much more than older generations. Dutton’s refusal to engage with influencers has narrowed his reach, while missteps such as his declaration that he would prefer to live in Sydney’s Kirribilli House over Canberra’s Lodge, did the rounds.

While Albanese has made his fair share of mistakes and neither leader has a natural flair for social media, the prime minister’s quips, vulnerability when speaking about his mother, and ability for banter may have put him in a stronger position on platforms such as TikTok where a sense of authenticity and personality are key to connecting with users, most of whom are younger.

Young people may have an appetite for bolder reform and back in more independents and minor party candidates this election, but Albanese will almost certainly secure a second term as prime minister. While there’s no one-size-fits-all approach to attracting young voters, doing the “ordinary” well is probably enough to get Labor across the line.

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Be warned: Ever-higher defence spending means ever-higher taxes

By tacit agreement of both sides, election campaigns exist in a highly contrived fantasy world where the future holds nothing unpleasant. Government spending only ever goes up to meet our growing needs, while those nasty taxes only ever go down. Debt and deficit have been banished to the never-never land of Don’t You Worry About That.

But last week Peter Dutton ripped a great big hole in the circus tent, through which you could see a frightening prospect: we seem to have strayed into a land where taxes just keep going up.

And this from the leader of the Liberals, the party that long has assured us taxes would always be lower under it than under its evil Labor opponents, the party of “tax and spend”.

It’s a lovely thought: there’s a party you can vote for that will always keep taxes lower. It’s just a pity the record doesn’t bear it out. I learnt long ago never to play the game that says one side is always better at running the economy or keeping taxes low.

This may shock you, but the record shows the two sides are much of a muchness. That’s because much that happens in the economy is caused by factors beyond a government’s ability to control.

When taxes are low relative to size of the economy, it’s usually because we’re in a world recession. That’s also when government spending is soaring and the budget deficit’s blowing out.

When taxes are particularly high, it’s usually because the economy’s booming, the government isn’t having to spend quite so much, the budget balance is heading back to surplus, and income tax collections are growing like steam – thanks to something you may have heard of, bracket creep.

Don’t believe any politician who tells you the other side’s into bracket creep, but we’re not. No sign of that in the record books. Similarly, don’t be fooled when some pollie – Dutton last week, for instance – tells you he “aspires” to end the tyranny of bracket creep. Even if he really believed it, his treasurer would take him into a back room and sort him.

Get this: it’s the magic of bracket creep – the effect of inflation in steadily increasing your income tax bill even though you’re no better off – that sustains the whole happy illusion that government spending can keep growing without any announced increases in the rates of income tax.

The pollies never have to announce an increase because inflation – even at a low rate – does the increasing without being asked, or much noticed. Bracket creep is the tax increase you have when the politicians have sworn not to increase tax rates.

What few of the people complaining about the cost of living realise is how much of the pain they’re suffering comes from bracket creep. They see prices rising at the supermarket, they see the Reserve Bank increasing interest rates, but they don’t see the taxman quietly increasing the income tax they pay.

Remember Anthony Albanese and Treasurer Jim Chalmers’ incessant boasting about the two financial years in which the annual budget deficit suddenly turned into two surpluses in a row? Much of that turnaround was caused by bracket creep – a point they didn’t think to mention.

Note, too, that it’s bracket creep which allows governments to announce modest tax cuts before elections, or promise them after elections. Bracket creep quietly but continuously pushes up the average rate of tax on all our income, allowing politicians to look like they’re cutting tax by occasionally giving back some of the bracket-creep proceeds.

But let’s get back to what Dutton did last week. It was yet another effect on this election campaign coming from Cyclone Donald. Trump has not just increased tariffs, he’s pressuring America’s former allies to greatly increase their spending on defence so they’re not as reliant on America’s own defence spending.

It’s true that we’ve gone for decades spending less than we might have, hoping that the way we’ve slavishly sent troops to just about everywhere in the world the Americans have picked a fight will ensure that, should we ever face a threat from some foreign power, the Yanks will fly to the defence of their loyal Aussie buddies.

This hope has always been dubious, but now Trump has turned on America’s defence allies it has become impossible to believe. So, although just a third of poll respondents think we should increase our defence spending, that’s pretty sure to be what happens.

At present, we’re spending about $56 billion a year on defence, equivalent to 2 per cent of our national income (aka gross domestic product). Labor’s existing plan is for this to rise to $100 billion a year by 2034, or 2.3 per cent of GDP. But the Americans say we should be spending 3 per cent. So last week Dutton promised to raise it to 2.5 per cent by 2030, on the way to 3 per cent by 2035.

Dutton says getting to 2.5 per cent would involve additional spending of a cumulative $21 billion. How would he pay for this? Simple, he says. He’d repeal Labor’s promised tax cut of about $5 a week, rising to $10 a week the following year, which it has already legislated. This would save $17 billion over the next four years, and about $7 billion a year thereafter.

What? Did you get that? Here’s a politician – a Liberal politician, no less – standing up in an election campaign and promising to increase taxes. By the standards of modern elections, that’s brave. Something Albanese would never dare to do. And that’s not all. If our politicians are serious about greatly increasing our spending on defence on the way to 3 per cent of GDP – and they seem to be – we’re talking really big bucks, not something we could just put on tick.

Speaking of which, we’re already looking at budget deficits totalling $150 billion over the coming four financial years. Do you really think we won’t be paying a lot more tax in coming years?

We’ll be seeing a lot more bracket creep, and far fewer seeming tax cuts.

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Question for voters: Which party do I want deciding wages policy?

The craziest thing about this election is that we’re into the last week of the campaign without anyone much bothering to mention the word “wages”. Really? We’re too obsessed by the cost-of-living crisis to have any interest is what has happened, and will happen, to our wages?

Is it possible our voters could be so detached from reality that they don’t see the link between prices and wages? It reminds me of the person who voted for Trump because “prices went up, and they’ve never come back down”.

That’s right, sir, the general level of consumer prices goes up and rarely falls back. That’s why it’s nice to see your wage rising in line with the rise in prices, or even a bit faster than prices. If that’s what happens, you don’t have a lot to complain about.

Is it possible some people think the government can do something about rising prices but has nothing to do with wages?

Actually, the proportion of workers who are members of a union has fallen so far – to 13 per cent – that many workers may feel they have no say in what happens to their wage, and neither does the government. The boss increases your pay occasionally if she feels like it.

The fact is, the cost of living is always high on ordinary people’s list of complaints. But it became a particular concern in 2022 because of the huge surge in prices caused by the pandemic. The annual rate of increase in prices got to about 8 per cent, but is now back down to the 2 to 3 per cent range we’ve become used to.

Trouble is, wages didn’t rise as much as prices did and, to make matters worse, in its efforts to get the inflation rate down, the Reserve Bank caused interest rates on home loans to rise by more than 4 percentage points. As well, “bracket creep” took an extra bite out of workers’ after-tax pay.

That’s what explains the voters’ obsession with the cost of living. But the surge in prices was set in train before the Albanese government won the last election in May 2022. So the real questions are: what has this government done about it, and would a change of government improve the prospects for the cost of living?

We can learn a lot from a new research paper by one of the nation’s top labour-market economists, Professor David Peetz, of Griffith University and the Australia Institute’s Centre for Future Work.

Peetz finds that, despite a fall in “real” wages (that is, after allowing for price rises) during the COVID pandemic and the subsequent surge in prices, by December 2024, real wages had recovered to be equal to what they were at the end of 2011.

Two things to note. First, this is wages before taking account of income tax. Real after-tax wages would not have recovered to their level 13 years earlier, because of the bracket creep made greater by the price surge.

Second, over those 13 years, the productivity of labour improved by 15 per cent. So none of the benefit of that improvement was shared with workers – contrary to the assurances of businesspeople, politicians and economists that, by some magic process, productivity automatically increases real wages.

Sorry, there’s nothing automatic about it. If workers don’t have the bargaining power to insist on their fair share of the spoils, employers don’t pass it on.

What labour-market economists understand, but most economists (including Reserve Bank boffins) keep forgetting, is that wage rates are determined not simply by the balance of supply and demand for labour, but also by the employees’ bargaining power relative to the employers’ bargaining power.

Peetz’s examination of 16 factors that influence or indicate power in the jobs market shows that “almost all economic and labour market trends in the past half century have reduced workers’ power”.

To be precise, he finds that 14 of the 16 factors indicate reduced workers’ bargaining power.

Here’s a list of the 14 – reduced union membership, a reduced proportion of workers whose wages are bargained collectively by unions, fewer days lost through strikes, the advent of the gig economy, businesses’ increased use of labour-hire companies, increased casual employment, fewer workers changing jobs, increased outsourcing of work, industries dominated by fewer firms, more issuing of temporary visas to foreign workers, use of non-compete clauses in employment contracts, increased franchising of businesses, increased importance of share-market capital, and increased competition from low-wage imports.

The two factors indicating increased workers’ power are the gradual decline in the gender pay gap and the fall in the rate of unemployment since 2010, although it’s been creeping up since 2023.

Peetz sees the influence of this overall decline in workers’ bargaining power in figures for the average annualised wage increases under new enterprise agreements. They gradually declined from about 3.5 per cent in 2014 to 2.5 per cent by 2022.

But in the two years since then, the average reached a peak of 4.8 per cent, and was higher in every quarter than it was in any quarter between December 2014 and December 2022.

Why the improvement? Peetz argues it’s because of the change in government industrial relations policy since the election of the Albanese government in mid-2022.

Whether voters know it or not, the federal government does influence the size of wage rises via its regulation of the wage-fixing rules. It can shift the balance of bargaining power between employees and employers. Under the Howard and subsequent Coalition governments it was shifted in favour of employers; under the Albanese Labor government it’s been shifted back in favour of employees and their unions.

And whether voters know it or not, the many hundreds of minimum wage rates set out in industrial awards – covering about the bottom quarter of workers – are increased on July 1 every year by an amount determined by the Fair Work Commission.

The federal government can influence these decisions by urging the commission to be generous or stingy. I’ll leave it to you to guess which side of politics likes to see bigger increases, and which prefers smaller.

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Dutton almost promised to fix bracket creep. Here's why he didn't

By MILLIE MUROI, Economics Writer

Taxes are a necessary evil – which is why neither side of politics is willing to sign themselves up to the best way to keep them in check.

While most of us acknowledge the merits, you’ll be hard-pressed to find anyone jumping for joy when they find out their tax bill is growing.

The one you’re probably most familiar with is personal income tax – a chunk of your income scooped out from your salary every pay cycle. Luckily for politicians, it’s not often that they need – or choose – to raise them.

That’s because the tax system is designed in a way that “naturally” fattens the amount of tax raked in by the government every year. You’re paying more in tax this year? “Not our fault,” they can shrug. It’s simply the way things are.

As you know, we pay bigger tax rates within higher tax brackets (slices of our income) with the amount of our income determining which rates – and ultimately, how much tax – we pay. While your income usually climbs each year, those tax brackets and rates don’t budge automatically.

When the growth of your pay packet is faster than the rise in consumer prices (such as the price of the champagne you might crack open after a pay rise), it’s not so bad. But when your pay isn’t keeping up with inflation, your tax bill still increases, leaving you doubly worse off.

This extra tax you pay is called “bracket creep”.

If we let it march on unchecked, by 2031, the average full-time worker is on track to get bumped from the 30 per cent tax bracket to the 37 per cent tax bracket, regardless of whether their wages, in “real terms” (after allowing for inflation) are going backwards, forwards, or sideways.

So, why is no politician on the crusade against bracket creep?

To be fair to Opposition Leader Peter Dutton, he had one of the best ideas in this broadly uninspiring election campaign: change the system. “Bracket creep, as we know, is a killer in the economy,” he declared in an interview this month, adding a worthy note of urgency: indexing (or raising tax brackets in line with inflation) needs to be introduced – quickly.

How quickly, exactly? Well, this is where his sensible idea seems to fade into a vague mist of political fantasies. First, we’ll have to “get the budget into a position where we can index the brackets”, he clarified at a later press conference on his campaign.

That’s about as clear a caveat as mud. What is that magical budget position? A budget surplus? By how much? And with the budget now, under Labor, forecast to remain in deficit for the next decade, it’ll be more than just the average worker being pushed into that 37 per cent tax bracket by the time the budget is back in balance. But if the Coalition (if elected) makes some deep cuts to spending, gets gifted some unexpected jumps in the tax on income from mineral exports, or rakes in significantly more money from other taxes, perhaps then.

But with plenty of policy costings yet to be released just a week out from election day, how are we to know if the Coalition has a coherent plan to get the budget – and apparently the country – “Back on Track”?

Dutton also labelled his idea an “aspiration” rather than actual policy, just about giving it a final kiss goodbye in the graveyard of good ideas. I can “aspire” to kick a goal for the Matildas once I get myself into a position where I can do that. I’ll leave the judgment to you on how likely that is.

Labor’s stance is not promising either. Prime Minister Anthony Albanese hasn’t even expressed a nice, fluffy goal when it comes to indexing income tax brackets. Instead, he has made a fairly safe tax promise: Labor will generously gift us taxpayers 1¢-in-the-dollar tax cuts in 2025-26 and 2026-27 for the lowest slice of our income that we pay tax on. That works out to be a saving of about $5 a week in the first year, and $10 a week the year after.

Sure, that compensates for some of the additional tax we’ll pay from bracket creep. But it’s not a lot, and it doesn’t stop the root problem: the growing number of workers who will be pushed into higher tax brackets in the years ahead.

All we seem to see from either side of politics is this kind of tinkering around the edges. Or, it’s temporary measures such as the Coalition’s low-and-middle-income tax offset in 2018, which gave a tax saving up to $1080 for people earning up to $126,000 a year (until 2022) and their promise this election of a $1200 “cost-of-living tax offset” for Australians earning up to $144,000.

It makes you think bracket creep is a problem neither side of politics really wants to solve – and you’d be right.

Have you ever noticed politicians are always announcing tax cuts, but never tax increases? They can thank bracket creep.

It’s a villain that allows whoever is in government to play the hero: “Look at these wonderful tax cuts and relief we’re offering!” It’s a bit like a doctor ignoring the preventative measures their patient could take, instead offering temporary or tiny relief through various medicines that simply alleviate the symptoms.

Bracket creep is also an excellent revenue driver for the government: a way for them to increase their tax take every year without lifting a finger. Not only does the government of the day get to wave offsets and tax relief around as if these things are a big favour to punters – they avoid having to put their name to the unpopular decision of increasing taxes.

Permanently tying the level of tax brackets to inflation also commits future governments to more budget discipline. If they don’t sufficiently limit the growth in government spending, they can’t rely on the quiet power of bracket creep to boost their coffers.

For now, it looks like neither side has the guts to end the sugar hit they get from bracket creep – all at the cost to workers’ pay packets. Getting tax “Back on Track” has a nice ring to it. If only Dutton had the guts to go with it.

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Our democracy's not working well. Here are some ideas to fix it

This limp, uninspiring election campaign is a sign our democracy isn’t working as well as it should. The voters’ preoccupation with the cost of living has been a gift to both major parties, allowing them to wave around a few small tax cuts and other sweeties while avoiding controversial measures to tackle harder problems.

The big two are claiming to want to get us “back on track” and “building Australia’s future” while saying and doing little about limiting climate change, reducing intergenerational unfairness (including unaffordable home ownership) and raising our stagnant standard of living.

The two parties have fought themselves to a standstill, where neither side is game to propose anything unpleasant – raising taxes, for instance – for fear of the scare campaign the other side would run.

What could we do to encourage politicians to try harder and show some courage? Well, John Daley, formerly a boss of the Grattan Institute, and Rachel Krust offer some good ideas in a report sponsored by the Susan McKinnon Foundation.

Their idea is to toughen up the institutions and arrangements that surround our federal politicians, putting more pressure on the pollies to get on with making real improvements. They want “a stronger parliament, a more independent public service, more independent advisory bodies and a competitive electoral system that rewards deep engagement with the whole community and pushes incumbents to do better”, Daley says.

They start with reducing political donations, which feed the perception – and the reality – that money is buying access and influence. Many of the donations come from industries which are highly regulated by the government. Gambling companies, for instance, contribute 10 per cent of the donations from industry despite accounting for just 1 per cent of the economy.

The cap on donations from industry bodies should be reduced from $1.6 million a year to $150,000 over the period between elections. The cap on spending by third parties (such as Clive Palmer) should be lowered from $11 million to $2 million. This would also apply to donations from “nominated entities” such as the Liberals’ Cormack Foundation and Climate 200.

The threshold for public disclosure of donations should be lowered from $5000 to $1000.

Daley and Krust say the limits on how much could be spent on campaigning that were agreed by the two major parties unfairly benefit nationwide political parties at the expense of independents by allowing the parties to buy advertising in marginal electorates which independents aren’t allowed to match.

Turning to the public service, the former Coalition government’s robo-debt scandal, in which senior public servants failed to stand up to their minister’s wish to do something unlawful and Barnaby Joyce’s admission that he fired a department secretary to get more compliant advice, tells us the public service has become too responsive to ministers and not independent enough in serving the long-term public interest.

Daley and Krust say we need legislation to require that department secretaries be appointed from a shortlist supplied by the Public Service Commission and the secretary of the Prime Minister’s Department.

Legislation should also limit the grounds on which a department secretary’s employment can be terminated.

Next, the authors want to curb a prime minister’s ability to call an early election. This gives the government an unfair advantage over its opponents because it can pick a date it thinks will work better for it as well as keeping its opponents guessing.

Speculation about early election dates creates uncertainty and distracts politicians and the media from focusing on policy issues.

The authors favour a fixed four-year term, but this would require a referendum. Three-year terms, however, could be made fixed terms by legislation, unless the government loses a confidence motion or is unable to pass supply bills to keep money flowing.

A further idea is to make civics education compulsory in the latter years of high school education.

It’s tempting to try to fix any and every problem by adding it to the school curriculum, but I think civics is a special case. People need to know how our political system works as part of their rights and responsibilities as citizens.

Testing shows that knowledge of civics is falling. Only 28 per cent of year 10 students were at the proficient standard last year – the worst result since testing began in 2004. Perhaps if young people knew more about how the system worked, they’d take more interest in election campaigns. And perhaps if they’d studied democracy, they’d value it as highly as the rest of us.

A further proposal by the authors is that independent members of parliament be given increased staff to help them review proposed legislation, particularly if they hold the balance of power.

Daley and Krust’s ideas are good and could give our politicians’ performance a shot in the arm. But the system as it is now is what makes life easier for the two major parties. Why would either Labor or the Coalition ever want to make such changes?

They wouldn’t. But that’s what makes the pair’s suggestions so timely. If either of the majors wins a majority of seats, those proposals are likely to go straight to the most unreachable shelf in the parliamentary library.

But there’s a high likelihood neither side will win enough seats to govern in its own right. In which case, one side or the other will need to gain the support of enough minor party and independent members to convince the governor-general it’s able to govern with stability.

So these are just the circumstances in which the crossbenchers will be well placed to bargain for their support and the authors’ wish list could come in handy.

I’ve never forgotten that NSW’s move to four-year fixed terms came as part of the bargaining with four independents after Nick Greiner’s Coalition government fell short of the numbers at an election in 1991.

Political miracles do sometimes happen.

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My Easter sermon: How we can Trump-proof our society

Since it’s Easter, and we’ve got the day off – and politicians have gone to ground – it’s a good time for, if not religious observance, then at least a little moral reflection.

According to The Economist magazine, Christianity is struggling across the developed world. The Americans seem more devout than other English-speaking countries, but since the turn of the century, church attendance there has fallen from 70 per cent of people to 45 per cent. In Italy, home of Catholicism, the number of churchgoers has shrunk by almost half over the past decade.

Of course, churchgoing and religious identification aren’t quite the same thing. For example, I still put myself down as Salvation Army on the census, which would come as a surprise to my local minister. As a mate explained it, “you can take the boy out of the Salvos, but you can’t take the Salvos out of the boy”.

Anyhow, here in Oz, according to the 2021 census, the proportion of people identifying as Christian has fallen from 61 per cent to 44 per cent in a decade. The proportion of those reporting “no religion” has risen from 22 per cent to 39 per cent.

Well, to each their own. If people are less religious than they were, how does that make much difference to anything? Actually, I think it could. To me, Christianity and other religions are a mixture of beliefs about the supernatural and beliefs about morality – what’s right and wrong behaviour, especially towards others.

It’s the latter that keeps me lining up with the Christians. And if reduced religious adherence leads to less ethical behaviour, then it certainly does make a difference, to our mutual cost.

In my essay last week about the decline in election campaigns, I noted that, these days, both sides of politics limit their appeal almost exclusively to our self-interest. Who was it who said “ask not what you can do for your country – ask which party is offering you the better deal”?

When politicians are no longer game to appeal to the better angels of our nature, that’s when you know we’ve got a problem. When politics becomes little more than making sure you and yours, or your company, or your industry, gets a bigger slice of the national pie, decline must surely follow.

Conventional economic theory is built on the assumption that the economic dimension of our lives is motivated by nothing other than self-interest. If so, heaven help us.

In Adam Smith’s familiar words: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

There’s much truth to his idea that the “invisible hand” of market forces can transform all that self-interest into an economy that meets our material needs pretty well. But that’s not the whole story, and it’s clear Smith never believed we could get along fine without moral behaviour.

The rich world’s experiment with what Australians called “economic rationalism” and academics now call “neoliberalism” had a price we’re still paying. It had the effect of sanctifying selfishness.

There’s a lot of self-interest in the world, and there always will be, but it’s wrong and damaging to imagine that it’s the only emotion that does or should drive human behaviour. As some behavioural economists have reminded us, humans co-operate with each other as well as compete.

To put it in terms more appropriate to Easter, all of us have our “better selves” by which we care about the feelings and needs of others, where we don’t like seeing others treated unfairly, getting an inadequate share of the pie or being denied the opportunity to flourish.

This brings us to Donald Trump. If things keep going the way they are, I won’t be surprised if many people conclude Trump and his tariff madness played a big part in this election’s outcome. The difficulties all the rich economies are having recovering from the post-COVID inflation surge have caused many incumbent governments to be punished for cost-of-living crises – even if, like the Albanese government, they weren’t in power when the seeds were sown.

If Albanese escapes that fate, Trump and his antics will be credited with having united our voters with their government against a threat from a hostile foreign power. But if Peter Dutton doesn’t do well, some will attribute this to his earlier admiration for Trump and his dalliance with some of his policies, such as his attack on government spending and public servants.

What I wonder is how such a crazy man with so many dangerous notions was able to talk his way into such a powerful office in what’s supposed by Americans to be the world’s greatest democracy, especially after they’d had a four-year test-drive to see what he was like.

I put it down to three factors: the Americans’ distorted voting system, their highly polarised party system where many Republicans knew how bad Trump was but voted for him anyway, and the large number of less-educated white voters, particularly men formerly employed in factories, who felt they’d been cheated by the market economy and alienated from those of us who’d done well from the technological advance and globalisation that had greatly reduced the cost of many manufactured goods.

So alienated are many Americans that they voted for Trump not because they believed his promises – they don’t believe any politician’s promises – but because they wanted to see him give the capitalist system an almighty kick in the backside. This is just what he’s doing.

In the heat of their neoliberal fervour, the Americans didn’t bother to look after the victims from their “reforms” – didn’t bother making sure they got decent unemployment benefits, let alone help to retrain and relocate in their search for employment.

If we don’t want to see the rise of our own Trump, we should follow Jesus’ advice to love our neighbour as ourselves.

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Whether you eat alone is a good predictor of happiness

By MILLIE MUROI, Economics Writer

If you’re sharing a meal with someone this Easter, chances are you’re happier.

In fact, it’s as strong an indicator of how happy you are as the amount of money you’re raking in and whether you’re holding down a job.

That’s according to this year’s World Happiness Report, which examined data from a survey across 142 countries and 150,000 people, finding the link between meal-sharing and happiness holds regardless of age, gender, country or culture.

There are well-established links between income, employment and happiness: someone holding down a job is more likely to be happy than someone who is unemployed. And the more money a person makes (at least until a certain point), the happier they tend to be.

You won’t see the rate of meal-sharing cited by many politicians or economists, but it’s a great indicator of happiness – and in some ways, more so than income.

How much you’re paid and whether you have a job is a stronger indicator of the level of negative emotions you experience, but how often you share meals has a stronger link both to the level of positive emotions you experience and how highly you rank your life satisfaction.

It’s the places where residents share more meals that tend to report greater average life satisfaction.

And while Latin America and the Caribbean are the global leaders in meal-sharing frequency, the link to happiness is stronger in Australia, North America and New Zealand than for any other region in the world. Starting to share most of our meals – meaning eight or more a week – can boost our wellbeing by the same amount as doubling our income.

We’re also a lot more likely to eat dinner with other people than we are to share lunches in Australia, sitting around the dining table with others for five dinners a week on average. Levels of meal-sharing generally are low in south and east Asian countries such as Japan, India and South Korea, where people share less than one meal out of three on average.

But wherever you look, it’s the places where residents share more meals that tend to report greater average life satisfaction.

Part of what makes the rate of meal-sharing such a good measure is that it’s relatively objective. It’s easy to ask and answer, it’s not something people are likely to hide or lie about (like they might for income), and it can be easily compared across countries, cultures, individuals and across time.

Of course, it has its limitations. For instance, how do we know whether sharing meals makes people happier, or if people share more meals when they’re happy to begin with?

We can’t say for certain, but chances are it goes both ways, at least to some extent.

Other factors can muddy the water. For example, are people more likely to share a meal if they have the money to go out and meet people at a restaurant?

These factors, at least, can be accounted for, and researchers found the relationship between meal-sharing and happiness held even after considering income, education, employment and a buffet of other indicators. The more meals you share, the happier you tend to be.

Those who shared 13 meals with others in the previous week reported the highest average life satisfaction. That tumbles the fewer meals respondents shared in the past week. But the biggest jump is between those who ate all meals alone and those who ate at least one meal with someone else.

While the relationship holds across demographics, there are some differences in the ways meal-sharing tendencies affect different cohorts.

Both men and women who eat more frequently with others report higher life satisfaction and feeling more positive emotions, but when we look at the negative impact of dining alone, it tends to hit women harder.

By age, both young and old people report higher levels of negative emotions if they dine alone. But there are much bigger gaps in life satisfaction and the level of positive emotions reported for young people dining alone compared with older adults. The good news is that young people tend to share more meals than their elders.

One strong explanation for why meal-sharing might be linked with happiness is that eating with other people is a way of strengthening social connections.

Decades of research has shown social connectedness is key to our happiness, mental and physical health. People with stronger social connections are also more likely to be promoted, less likely to commit crimes and tend to live longer lives, while those who are socially isolated or lonely tend to experience more negative life outcomes.

This is good news for policymakers who might be looking for new, cost-effective and practical ways to boost happiness. Funding for initiatives or new programs centred around meal-sharing could be a realistic way to help strengthen social ties and well-being.

As a bonus, the research also found that sharing meals was linked to higher enjoyment of the food consumed or prepared. Put simply, eating your food with other people probably makes your food taste better.

While the findings certainly have implications for high-up decision-makers, it’s also something which individuals can think about in their everyday lives. If sharing meals is linked to higher life satisfaction and happiness, it could be worth finding ways to increase the number of meals you share with those around you.

So when your parents drag you to the table for dinner, or when you’re deciding whether to go eat your lunch alone or with colleagues, there’s a good argument for why you should step away from your room or desk and break bread together. It could just make you happier.

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