Title page
Contents
Foreword 4
Executive Summary 10
1. Key policy insights 15
The initial pandemic response was well coordinated 17
The macroeconomy rebounded strongly, but has weakened amid new restrictions 19
Monetary and financial policies have provided a buffer against the shock 25
Achieving monetary policy objectives 28
Fiscal policy has responded with unprecedented force 29
Supporting the recovery while ensuring fiscal sustainability 32
Regulatory and institutional reforms are needed for a sustained recovery 47
Reforming regulatory and administrative procedures 51
Faster decarbonisation can bring significant economic benefits 60
Further reducing greenhouse gas emissions from high levels 60
References 70
2. The role of the financial sector in supporting a sustainable and inclusive recovery 75
Key trends in Australia's financial sector 76
The financial sector has played a critical role in the COVID-19 crisis response 80
Shoring up liquidity 83
Flattening the insolvencies curve 85
Maintaining financial stability 88
Channelling finance to viable and productive firms 93
Improving access to credit 95
Broadening sources of finance beyond banks 103
Supporting the green transition 109
Enhancing risk disclosure 110
Funding the green transition 113
Maintaining well-functioning insurance markets amid more frequent climate-related natural disasters 115
Strengthening households' resilience and mitigating inequality 116
Ensuring consumer credit protection is appropriate 116
Narrowing gaps in financial literacy and inclusion 119
References 126
Annex 2.A. The Royal Commission into misconduct in the financial services industry 133
Table 1. Macroeconomic projections 11
Table 1.1. Macroeconomic indicators and projections 24
Table 1.2. Possible further shocks to the economy 25
Table 1.3. Monetary policy support since the onset of the pandemic 26
Table 1.4. Fiscal policy support since the onset of the pandemic 30
Table 1.5. Illustrative fiscal impact of selected reforms 42
Table 1.6. The tax burden is increasingly falling on personal incomes 43
Table 1.7. Past OECD recommendations on fiscal policy 46
Table 1.8. Illustrative GDP impact of selected recommendations 53
Table 1.9. Past OECD recommendations on ensuring a competitive and innovative business environment 59
Table 1.10. Past OECD recommendations on promoting environmental sustainability 67
Table 1.11. Key Policy Insights recommendations 68
Table 2.1. Most superannuation assets are managed by industry funds 77
Table 2.2. Timeline of inquiries into the financial services industry 80
Table 2.3. Overview of policies in response to COVID-19 relying on the financial sector 81
Table 2.4. The authorities have used a range of policies to reduce financial stability risks 92
Table 2.5. Risk weights are high for SME loans unless secured by residential property 96
Table 2.6. Examples of government venture capital initiatives 108
Table 2.7. Recommendations to ensure the financial sector supports a sustainable and inclusive recovery 124
Figure 1. The virus was suppressed for a period but cases have risen in recent months 11
Figure 2. The initial downturn was relatively mild 11
Figure 3. Fiscal policy has been supportive 12
Figure 4. Faster progress in reducing carbon emissions is needed 13
Figure 1.1. GDP per capita had slowed pre-pandemic 16
Figure 1.2. A resurgence of the virus has been accompanied by a faster pace of vaccinations 17
Figure 1.3. Confidence has recently fallen back and there are divergent trends across sectors 20
Figure 1.4. The Asia-Pacific is the core bilateral trading region 21
Figure 1.5. The labour market shock was abrupt but employment rebounded after the initial lockdown 22
Figure 1.6. Lower wage workers experienced more adverse employment outcomes 23
Figure 1.7. Market interest rates have declined 27
Figure 1.8. Underlying inflation has undershot the target band for a prolonged period 28
Figure 1.9. Additional fiscal support was significant and front loaded 29
Figure 1.10. A multitude of policy measures were employed to fight the pandemic 30
Figure 1.11. Fiscal stability can be restored in the short-term 34
Figure 1.12. There are long-term fiscal pressures from ageing 35
Figure 1.13. Unemployment benefits remain very low by international standards 37
Figure 1.14. The tax base is skewed towards income taxation 43
Figure 1.15. The GST rate is low and there are significant exemptions 46
Figure 1.16. Productivity and real wages have stagnated 48
Figure 1.17. Small young firms were hard hit at the onset of the pandemic 48
Figure 1.18. Young firms have been the drivers of employment growth 49
Figure 1.19. Firm entry rates have slumped and those that do enter are larger 50
Figure 1.20. A higher share of young firms would considerably boost employment 50
Figure 1.21. The licensing system and regulatory complexity are ripe for reform 51
Figure 1.22. The pace of entrepreneurialism has been weakest in digitally intensive sectors 55
Figure 1.23. Australia ranks among peer countries in indicators of corruption 57
Figure 1.24. Australia is in line with other comparable countries on tax transparency 59
Figure 1.25. Emissions will need to decline faster to achieve net zero emissions by 2050 61
Figure 1.26. Progress in reducing net emissions has varied across sectors 62
Figure 1.27. Carbon emissions are priced lower than in most other countries 63
Figure 1.28. Green growth indicators 65
Figure 2.1. Australia's financial system has grown dramatically in recent decades 77
Figure 2.2. Around half of superannuation funds' assets are invested in equities 78
Figure 2.3. The banking system is relatively concentrated 79
Figure 2.4. Institutions in the Australian financial sector and their responsibilities 79
Figure 2.5. Stronger capital ratios supported banks' resilience 81
Figure 2.6. The Term Funding Facility provided a large amount of low-cost funding for banks 84
Figure 2.7. Most deferrals from the initial phase unwound at an orderly pace 85
Figure 2.8. There have been far fewer business insolvencies than usual 86
Figure 2.9. Australia's insolvency laws have become more friendly to entrepreneurship 87
Figure 2.10. Asset quality has only deteriorated modestly 89
Figure 2.11. Household debt and bank exposures to real estate are high 90
Figure 2.12. Macroprudential policies could be tightened further 92
Figure 2.13. Access to finance is a barrier for innovative firms and innovation 94
Figure 2.14. Obtaining finance has become more difficult 94
Figure 2.15. Lending is highly skewed towards households 95
Figure 2.16. The interest rate spread on SME loans is relatively wide 96
Figure 2.17. The major banks have remained entrenched 97
Figure 2.18. Open banking is being phased in 102
Figure 2.19. The stock market is sizeable and liquid 104
Figure 2.20. Public equity raising has been comparatively strong 104
Figure 2.21. Small IPOs are relatively common 106
Figure 2.22. Venture capital is low and has not recovered since the global financial crisis 107
Figure 2.23. Alternative finance is still in its infancy 109
Figure 2.24. Green bonds have grown rapidly 114
Figure 2.25. Overall levels of financial knowledge and inclusion compare well 119
Figure 2.26. Financial knowledge is strongly related to demographic characteristics 120
Figure 2.27. Financial literacy is a little above the OECD average with wide dispersion 121
Figure 2.28. Financial inclusion, knowledge and resilience are lower for Indigenous Australians 122
Boxes
Box 1.1. Australia's National Cabinet 18
Box 1.2. Australia's Charter of Budget Honesty 32
Box 1.3. The short-term path of fiscal policy 34
Box 1.4. The Australian Intergenerational Report 2021 36
Box 1.5. The National Agreement on Closing the Gap 39
Box 1.6. Australian Government Retirement Income Review 41
Box 1.7. Budgetary impact of the main fiscal recommendations 42
Box 1.8. The impact of business dynamics on employment growth 49
Box 1.9. Estimated GDP impact of selected structural reforms 53
Box 2.1. Australia's superannuation industryAustralia's mandatory retirement saving system 77
Box 2.2. Overview of changes to Australia's insolvency laws 86
Box 2.3. Lessons from the UK experience of reducing barriers to entry in the banking sector 98
Box 2.4. Australia's Consumer Data Right and open banking 101
Box 2.5. The Task Force on Climate-related Financial Disclosures 112
Box 2.6. The EU climate benchmarks 115
Box 2.7. Measuring financial literacy in Australia 124
Annex Tables
Annex Table 2.A.1. Recommendations from the royal commission relating to the banking sector 133