Various doctors of economics have diagnosed the Australian economy with a bad case of inflation. The Treasurer Wayne Swan says symptoms may persist for two years, but adds that there are teams of specialists from within the Treasury and the Reserve Bank working hard to cure “the parting gift” of the previous government.

But are raising interest rates and slashing government spending the only therapeutic options? How else might we attack the underlying causes of rising inflation and a jittery stockmarket? Crikey asked a group of leading economists for some clever ideas on treating our economic ills.

  1. Integrate fragmented markets in industries like electricity. ANZ Chief Economist Saul Eslake told Crikey: “One of the contributing factors to inflation has been the rising price of electricity, and yet we have surplus capacity in some electricity systems like New South Wales, which at the moment is not able to be used to increase supply to states where there is insufficient electricity.”
  2. Increasing the supply of rental housing. Rising rents make a significant contribution to raising inflation. Eslake says we have “a major supply side problem here. For some years underlying demand has been driven by population growth and immigration exceeding the supply of housing. Policies that improve housing affordability, especially for renters, would help. This is a problem that the government can do something about.”

  3. Investments that expand the supply potential of the economy in things like rail freight as an alternative to roads, remembering that petrol prices have an impact on prices. Investments in water would have a similar effect.

  4. Policies that moderate the rate of growth of demand. For example, finding ways to encourage people to save tax cuts instead of spending them, or finding other ways to moderate household demand. Options might include a first homebuyer savings account or making superannuation more attractive.
  5. Policies over the medium term that expand the supply side of the economy, such as fixing infrastructure bottlenecks, coal ports in particular.
  6. Remedy the shortage of skilled labour. Michael Knox, Chief Economist and Director of Strategy at ABN AMRO Morgans, says the only way to get enough skilled labour in a short enough time “is to have a targeted program of accelerated immigration of skilled labour.” Knox says that can mean targeting particular countries. “Having been in London over the holidays, I noted the enormous contribution eastern European labour makes to the British economy, and even to the German economy. Maybe we should be targeting immigrants that would otherwise be going to England.”
  7. Which leads us to the federal-state relationship. Knox says: “There needs to be a program of either state governments limiting the growth on services spending so they can spend more on infrastructure, or, a national program of privately-funded infrastructure spending that would be coordinated on a national program.”
  8. In a bid to boost productivity, Josh Williamson, senior strategist with TD Securities, says “lowering red tape and regulation for business in terms of how they deal with government would help to decrease the cost side of their operation,” thereby helping to lower the cost of their products to consumers.
  9. Deliver or exceed the election promises made on broadband. With most Australian workers already employed, faster broadband serves to help them to become more productive. “If you go back to the late 1990s, Australia was right at the forefront in IT, but Australia has slipped behind when it comes to the speed of our broadband,” says Shane Oliver of AMP Capital Investors. “Better encouraging the take-up of IT is another way to boost productivity. The broadband proposals being talked about are a good step in that direction.”
  10. Enhance competitiveness, particularly among supermarkets and the banks. Oliver says the subprime crisis has increased the difficulty non-bank lenders face in the market, which could have the effect of reducing competition in the finance sector.