Month: June 2026

Source: Prime Minister of Australia

begin by acknowledging the traditional owners of the land on which we meet and I pay my respects to their elders past, present and emerging.

Every year, CEDA’s State of the Nation Conference invites all of us caught up in the busy rush of a Parliamentary sitting week, to take a breath. 

To zoom out from the day to day, hour by hour, minute by minute political contest, and look to the long term.

CEDA frames its work around the Australia of 2050.

In our democracy, where three-year terms are short and the media cycle is much shorter, when there are always new challenges emerging and different issues competing for attention, a quarter century into the future can seem impossibly distant.

But the Australia of 2050 is not a remote prospect.

Our future prosperity, growth and productivity will be shaped by changes underway around our world right now.

The global shift to clean energy.

The transformative impact of Artificial Intelligence.

The use of international supply chains as instruments of economic and strategic competition. 

And, every bit as importantly, the Australia of 2050 will be defined by how we respond to this changing world.

Because if we act now, if we back ourselves, if we work together to shape the future, rather than waiting for the future to shape us, then Australia can do more than find a way through this period of global uncertainty, we can emerge stronger, fairer, more resilient and more prosperous.

We can build on our global leadership in clean energy and use it to power a new generation of Australian manufacturing.

We can bring our national values of fairness and opportunity to AI, so that it grows our economy and strengthens our sovereignty, without fragmenting our society or damaging our environment.  

And we can own our place in the architecture of the fastest region of the world in human history.

Stabilising our relationship with China, deepening our investment in South East Asia, elevating our ties with India.

Making ourselves the security partner of choice for the Pacific.

And the report that CEDA published this week is right: Australia cannot drift our way into those opportunities, we have to seize them.

And just as the choices we make today will shape the decades ahead.

We must also deal with the consequences of choices made decades ago.

The changes that John Howard and Peter Costello made to capital gains tax and its interaction with negative gearing were supposed to boost investment in the share market.

Instead, they turbocharged property as an investment vehicle.

So while the percentage of Australians who own shares has actually fallen compared to a quarter century ago, house prices have risen by 400 per cent in the same period, more than twice as fast as incomes.

We know supply is a key part of the solution – which is why we have thrown everything at it over the past four years:

Our $47 billion Homes for Australia plan, has provided:

New incentives for the states to speed up approvals and unlock land.

New funding for connecting infrastructure.  

Free TAFE and $10,000 payments for construction and electrical apprenticeships.

Building new social and affordable housing, through the Housing Australia Future Fund.

Help to Buy, Build to Rent – and 5 per cent deposits.

All of this has made a difference.

Yet there were still too many young Australians who were doing everything right: working hard, making sacrifices, but missing out at auctions because property investors could outbid them, knowing they had those tax breaks giving them an advantage over owner-occupiers.

The easy political option in that situation is to kick the can down the road.

To try and explain away, or work around, a system that isn’t working.

And while that might be the easy choice – it’s not the right one.

The privilege of serving in Government demands more of you than that.

It is not enough to acknowledge people’s frustration – you have to act on it.

You can’t just nod along while young Australians tell you that the deck is stacked against them, you have to do something to give them a fair crack.

That is the choice our Government has made.

And when we embarked on this journey, we did not imagine for a moment that it would be all smooth sailing.

We knew there would be the usual political attacks.

Some of us remember the campaign that argued the introduction of Fringe Benefits Tax would shut the doors of every restaurant, pub and hospitality venue in the country.

Equally, we understood there would be consultation required and improvements to make.

We specifically flagged that in the Budget papers.

Which is why in addition to retaining all four capital gains tax concessions for small business.

We have also expanded the threshold for the most frequently used carve-out, to cover all businesses with up to $10 million in turnover.

That represents 98 per cent of all active businesses in the nation – and every active small business in Australia.

In addition to this, in the months ahead, we will continue to consult with the start-up sector on a new Innovative Business CGT Concession.

All of these improvements are a credit to the constructive engagement of the business community.

That’s the way our Government operates – and it is the way reform should work.  

Consensus does not mean beginning with 100 per cent agreement – or arriving at it.

It means listening, negotiating – and moving forward to an outcome.

That’s what we will continue to do, across our agenda.  

Yet as with last year’s reforms to the EPBC Act, where it was obvious the system was not working for anyone, the Opposition have chosen irrelevance, they have dealt themselves out of the process.

And this time around they have gone beyond defending a status quo that is failing people – they are now promising to re-impose it.

To bring back the distortions that have locked young people out of the housing market.

They want to repeat the mistakes of decades past, we are fixing them – in housing and across the economy.

Because the global turbulence of the 2020s has exposed the mindset which told Australians it was smart and rational and efficient to offshore manufacturing.

To cut skills and TAFE. 

Close refineries.

Narrow our industrial base.

And privatise national assets.

Because the stable, predictable expansion of globalisation would pick up the slack.

That someone else, somewhere else, would be able to sell us what we needed cheaper than we could make it ourselves.

It is crystal clear that this old economic model is not suited to the world we are in, nor fit for the future ahead.

The Australia of 2050 will be shaped by what we build in its place.

By the lessons we learn from what the world has thrown at us.

By the action we take to seize the opportunities the world holds for us.

And by the reforms we drive to deliver real change.

Boosting productivity is critical to this.

That’s why we are cutting red tape, speeding-up approvals and abolishing hundreds of nuisance tariffs.

Creating a single, national market for skills, so state borders don’t stand in the way of businesses finding and hiring the right workers.

All of this is about incentivising business investment – and converting that into stronger growth and better wages.

The National Accounts show that business investment as a share of the Australian economy is at its highest level in nearly a decade.

Australia is growing faster than almost every other advanced major economy – and that growth is being led by the private sector.

We’re building an economy that is more productive – and more resilient.

So we are better prepared for the next global shock and better placed to make the most of our natural advantages.

Combining Australian ideas and Australian skills to turn the traditional resources, critical minerals and rare earths that the world needs into products the world wants.

Above all, our goal is to build an economy that works for people, not the other way around.

One that upholds our national values of fairness, opportunity and aspiration for all.

That is the optimism, the determination and the belief in Australia that underpins our Government’s agenda, even in these times of global uncertainty.  

It is extraordinary to think that in the 2020s, Australians have already had to deal with four global crises in six years:

A once-in-a-century pandemic.

The highest global inflation since the 1980s.

A land war in Europe, leading to the biggest international energy crisis since the 1970s.

And the biggest spike in petrol and diesel prices, ever – which we know is putting pressure on inflation here, and around the world.

I understand that for workers and businesses trying to manage the combined impact of these economic shocks, planning for the future can sound like a luxury.

But in a world of rapid change, our country cannot wait and hope for a moment of calm and quiet before we look ahead.

Instead, we have to deal with the challenges of the here and now – in a way that anticipates and creates the future we want to build.

That is the approach that defines our Government.

You’ve seen it again through this global fuel crisis.

Helping Australians under immediate pressure – by working with the states and territories to cut fuel taxes.

And now extending that relief through to the 2nd of August.

But also stepping up our engagement with our partners in our region.

And empowering Export Finance Australia to secure shiploads of additional petrol, diesel and fertiliser for our farmers, miners, truckies and tradies.

If this Conference had been held in March, there would have been questions about when we would move to fuel rationing.

That’s what was being asked in the Parliament, on an almost daily basis.

There is more fuel in Australia today, than when the conflict in the Middle East began.

And our Budget built on those efforts by investing over $10 billion in long term fuel security, storage and production.

Our action on the cost of living continues next Wednesday, the 1st of July:

Another real increase in the minimum wage.

Another tax cut for every single taxpayer – with more on the way next year.

When we were elected, the first marginal tax rate was 19 cents on the dollar.

Next year it will be down to 14 cents.

That will work together with our $1000 Instant Tax Deduction, which not only simplifies the system and boosts productivity, it also means millions of low and middle income earners will get more of their money back at tax time next year.

And these tax cuts will be followed by our new $250 Working Australians Tax Offset.

Part of the work we are doing to rebalance the tax system.

Better aligning the way we treat income earned from work, compared to income derived from assets.  

Because most Australians have nothing to sell but their time, nothing to give but their hard work.

That’s how they earn a living, that’s how they put food on the table – by going to work, every day.

And they deserve a tax cut – and the opportunity to buy a first home.

On the 1st of July, we are also expanding Paid Parental Leave to a full six months.

And making the 137 Urgent Care Clinics that we promised – and have now opened – a permanent part of Medicare.

Taking pressure off public hospitals and ensuring more Australians than ever can get free healthcare, close to home.

Next week will also mark one year since the launch of our Cheaper Home Batteries program.

Our initial goal was one million new batteries by 2030.

We have already seen an extraordinary 450,000 installed.

Families and small businesses taking up the opportunity to permanently cut their power bills.

And – across the nation – it is overwhelmingly the regions and outer suburbs leading the charge.

Australia was already the world leader in rooftop solar.

Our scientific breakthroughs made it possible – and our sunny skies make it practical.

We are now ranked third in the world for battery storage too – behind only the United States and China.

On a per capita basis, we are way ahead.

And the benefits of Australians embracing this technology are beginning to flow through to the energy market as a whole, reducing demand in the evening peak.  

The three right wing parties have been pushing the same arguments against renewables, with the same slogans, for two decades now.

And every year, as the technology gets more efficient and more affordable, that ideology becomes less convincing.

Because on roads and rooftops right around our country, people are making practical choices, not political statements.

And it is not just individuals voting with their feet.

Some of the biggest users of energy – from the Boyne Aluminium Smelter in Gladstone to Microsoft’s new data centres in New South Wales – are embracing and investing in reliable, affordable renewables.

We are determined to ensure these large-scale projects contribute to our national energy security – and drive downward pressure on power bills, for everyone.

We will continue to look at every responsible option to shield Australians from global uncertainty and help people doing it tough.

At the same time, we recognise that the frustration many Australians are feeling runs deeper than any particular cost pressure.

It is the bigger sense that the economy isn’t working for them.

That their hard work isn’t paying off.

And that their children, the next generation of Australians, won’t have the same opportunities that they did.

That it will be harder for them to find a rewarding career, buy a home, start a family, build a good life.

That sentiment hasn’t sprung up overnight. It’s built up, over decades.

And while there might be some who treat it as a political opportunity – I take it as a practical challenge.

Because Australians’ frustration with the system is more than an emotional reaction, or an ideological one.

It is practical, it’s tangible – and so are the solutions we are providing.

That starts with a wage you can live on, a job you can count on, being able to pay your bills, afford the medicine you need and provide for your family.

And it is the economic and social fabric that we take pride in, as Australians.

The things that bring us together as a country – and set us apart from the world.

Bulk-billing through Medicare.

Quality public education, at every stage of learning.

Dignity and security in retirement.

The aspiration of home ownership.

That’s the true test for parties of government.

The capacity to deliver real change, when and where it really matters.

Making a positive difference to people’s lives by undertaking the hard work of structural reform.

And tackling the big changes that have been put off for too long.

That’s why we are reforming the energy market, aged care, education, employment services, the National Disability Insurance Scheme, skills and migration – and the tax system.

So they are right for the times – and ready for the future.  

People can go a long way in politics, for a long time, by raging against the system that they are a part of.

But none of that takes our country anywhere – or changes anything.

Real change means boosting wages and cutting taxes.

Powering new jobs and backing small business.

Making it easier to see a doctor for free – and making sure every Australian child gets the best start in life.  

Investing in the skills and technology that will enable our workers and businesses to shape the future.  

And helping the next generation put a roof over their head.

This is the real change that matters to Australians.

It is the real change we will continue to deliver.

Source: Prime Minister of Australia

begin by acknowledging the traditional owners of the land on which we meet and I pay my respects to their elders past, present and emerging.

I acknowledge members and senators here this evening.

And members of the diplomatic corps.

I extend my thanks to Embassy staff, and I particularly want to acknowledge Chargée d’Affaires, Erika Olson.

Erika has led the American mission in Australia with distinction, and on behalf of the Australian Government I wish her the very best for the future.

In due course, I look forward to welcoming incoming Ambassador David Brat to Australia.

Together with President Trump, we will build on the strength of our alliance.

Celebrating this special 75th year of the ANZUS Treaty and alliance by looking forward to our shared future.

Deepening the bonds of friendship and the goodwill that has linked our two peoples over generations.

Ladies and gentlemen –

This evening we commemorate two hundred and fifty years of the Declaration of Independence of the United States of America.

Two and a half American centuries that have fuelled the economy, shaped the thought and instructed the values – not just of the United States – but of our world.

That reality is built around us now, in this city – designed by two Americans no less.

Because though we stand some 16,000 kilometres from the hill that hosts the shining Capitol Building in Washington DC.

Nestled just over there, on a Capital Hill of our own, rests the seat of our Australian democracy.

Unique in its own way.

A parliament, rather than a congress.

Though with a Senate elected by our states.

And a House of Representatives elected by our people.

From there – just as Americans do for each other in Washington, Australians govern ourselves.

Two democracies – of the people, for the people – by the people.

In fact, to look around this city is to find symbols carved in stone and marble.

Temples of democratic freedom made physical that tell of an Australian democracy remarkably consistent with the principles laid out in the Declaration we have come together to celebrate tonight.

Because as we look harder at the events of that summer’s day in Philadelphia in 1776, we see more clearly that – in fact – we are not only looking into the past.

But into a type of democratic mirror.

Because in that moment – in that act of Declaration – we find a political deed that not only birthed one of the most consequential nations in all world history.

But that distilled the democratic project to its purest form.

A powerful imagining of democratic politics not as a matter of theory – but a matter of practice.

A preamble of scarcely 200 words, setting out the ideals that continue to call down to us through the years:

That power is derived from the consent of the governed.

That all men – and women – are created equal.

That life, liberty and the pursuit of happiness are truths that are self-evident and inalienable.

It is that same democratic spirit that our peoples have judged worthy to defend, to fight and die for – side by side.

Their sacrifice underlines our lives.

Ladies and gentlemen.

In democracies like ours, each generation learns from the ones that came before.

Working to build toward a better society – more fair, more prosperous, more just.

And it is our democratic traditions themselves – the dynamism of freedom – that make that renewal possible.

It propels us.

But it is also what keeps us steady.

Because flowing through us all is the knowledge that our democratic foundations are as strong, creative, courageous as the people we serve.

Over centuries, it has been the project of the United States of America to galvanise those ideals.

To keep them constant, and to make them new again.

And so now, as in 1776, let us reaffirm our commitment to them in the terms they were written – with our ‘lives, our fortunes and our sacred honour.’

I wish the United States of America a wonderful 250th birthday.

And many happy returns.

Source: Airservices Australia

The Reserve Bank of Australia (RBA) is commencing its Review into Payments System Regulation. The RBA has today released an Issues Paper, inviting stakeholder views and evidence on which payments policy issues should be prioritised by the RBA. This followed amendments to the Payment Systems (Regulation) Act 1998 to expand the coverage of the legislation to additional payment systems and their participants.

This Review comes at a time of significant innovation and change in the payments landscape, which is reshaping how Australian consumers and businesses make and receive payments. These developments have the potential to make payments more convenient and safer, facilitate the entry of new players and lower costs for end users. At the same time, they could give rise to potential concerns for competition, efficiency or financial safety in the payments system. This Review would help to ensure RBA’s payments system regulation continues to promote the public interest.

The Issues Paper sets out potential questions about:

• merchant choice of payment methods and providers
• account-to-account payments and competition with card payments
• mobile wallets, non-designated card networks and buy now pay later services
• cryptography and fraud prevention.

Stakeholders can provide written submissions by 7 August 2026. The evidence gathered through this consultation will inform the RBA’s prioritisation of issues and consideration of whether regulatory action may be warranted and, if so, what form that could take. The RBA intends to publish a list of regulatory priorities by the end of 2026 and commence further consultation on prioritised issues by mid-2027.

Source:

The Joint Standing Committee on Electoral Matters has been conducting a review of the 2025 election.

On 24 June 2026, the Committee agreed to re-invite the Plymouth Brethren Christian Church (informally known as the Plymouth Brethren or PBCC), and Advance (previously known as Advance Australia) to give evidence before a hearing of the Committee. This is after both groups declined to appear at previous hearings in November 2025, and March and May 2026.

Source: Government of Victoria 3

What is the issue?

Any gas appliance, gas heater, wood heater or fire-place, equipment or items powered with a gas or petroleum engine, have the potential to leak carbon monoxide, especially if they are used incorrectly or are faulty. This can cause a health risk when they are used in enclosed or poorly ventilated areas, such as inside the home or in a caravan.

Symptoms of carbon monoxide poisoning are non-specific and can be confused with other more common conditions. This increases the potential that carbon monoxide exposure is not identified by health professionals which may have serious or potentially fatal consequences.

Open-flued gas heaters, as well as wood heaters, where air from within the home is drawn in to feed the fire, may increase indoor carbon monoxide levels under certain conditions. Negative room pressure can occur when there is inadequate room ventilation in the home and a kitchen rangehood or bathroom exhaust fan is operating. The combination of this occurring at the same time as operating an open-flued gas heater or wood heater, may draw unsafe levels of carbon monoxide into the living area via the heater’s flue/chimney. The risk is increased if the heater is faulty or the flue/chimney is blocked.

Checking for negative room pressure should be part of regular gas heater service and testing. This is especially important if you live in a renovated or weather sealed house with an open-flued gas heater. Airflow through clear wall vents or a partially opened window may prevent negative room pressure occurring.

In July 2022, Energy Safe Victoria banned the sale and supply of new open flued gas heaters that do not meet new Australian Standards. This Standard requires newly manufactured open flued gas space heaters to shut down within 15 minutes to prevent carbon monoxide spillage if the appliance is operating in a negative pressure environment.

Refer to the Energy Safe Victoria’s safety alert list for models of open-flued gas heaters that should be checked by a qualified gas fitter immediately.

Who is at risk?

All people and pets exposed to carbon monoxide can experience carbon monoxide poisoning.

Children, pregnant women and their unborn babies, older people and those with chronic illnesses such as heart and lung disease, are at increased risk of severe health impacts from carbon monoxide poisoning.

Symptoms

Carbon monoxide poisoning can cause a range of symptoms including headache, nausea and vomiting, skin flushing, muscle pain, weakness, shortness of breath, dizziness, coordination difficulties, confusion, or chest pain. Symptoms can be mistaken for flu-like illness or food poisoning.

Very high levels of carbon monoxide can cause loss of consciousness, seizures and death.

Long-term exposure to low levels of carbon monoxide can also lead to impaired thinking and concentration, emotional lability, irritability and impulsiveness.

Anyone concerned that they may have carbon monoxide poisoning should:

• Immediately turn off all gas appliances.
• Open doors and windows to ventilate the area.
• Leave the property, keeping the doors and windows open if possible.
• Seek medical advice immediately or call NURSE-ON-CALL on 1300 60 60 24 (24/7).
• For urgent care options visit the Better Health Channel. In an emergency call 000.

Diagnosis

Diagnosis can be challenging as symptoms are non-specific and may occur with other more common conditions.

The diagnosis of carbon monoxide poisoning is based on history and examination, in conjunction with an elevated carboxyhaemoglobin level, as determined by venous blood analysis or a fingertip carboxyhaemoglobin monitor.

Measure carboxyhaemoglobin levels in any case of suspected carbon monoxide poisoning when the patient is first seen, as levels decline over time. Note that carboxyhaemoglobin may be elevated after smoking cigarettes.

Recommendations

For the Victorian community:

• Refer to Energy safe Victoria’s ‘Warm up to winter with a home heating safety check’.
• All gas heaters need to be serviced at least every two years by a licensed or registered gasfitter who is qualified to service Type A gas appliances. A licensed gas fitter checks the installation including testing for carbon monoxide leakage. Check that they are accredited before work commences.
• In accordance with the Residential Tenancy Regulations 2021, rental providers are required to arrange gas safety checks of all gas installations and fittings in rental properties by a licensed or registered gasfitter every two years.
• Gas heaters that are subject to a safety alert from Energy Safe Victoria should not be used unless these heaters have been serviced and deemed safe by a licensed or registered gasfitter. To view these models, go to Energy Safe Victoria safety alert list.
• To check whether you have an open-flued gas heater, contact the supplier or manufacturer or check with your local licensed gasfitter.
• Gas heaters should not be left to run continuously overnight.
• DO NOT:
  • Bring portable appliances designed for outdoor use inside your home or caravan. This includes barbeques, the use of heat beads, and portable patio heaters.
  • Leave cars idling in basements or garages attached to the house.
  • Use gas stoves or ovens to heat homes.
  • Block flues or chimneys even if they are draughty as blockages allow carbon monoxide into the home.
• For woodfire heating, only burn natural wood that is dry and not treated.
• Installing a carbon monoxide alarm is a useful back-up measure but does not replace the need for regular servicing of gas heaters. Select alarms that meet US or EU carbon monoxide standards (UL2034 (US) or EN50291 (EU), and carefully follow instructions for installation, maintenance and use.

For health professionals:

Exercise a high level of suspicion of carbon monoxide poisoning if:

• Symptoms are temporarily related to the use of a gas/wood heater, or other gas/petroleum fuelled appliance/item, used in an enclosed space.
• Symptoms also occur in other occupants of the household (including pets) or in an adjoining property.
• Symptoms improve when outside the house.
• There are concerns about the functioning of the heater or appliance – where they appear faulty or have not been maintained/serviced.
• A new exhaust fan has been installed or wall vents recently blocked.
• A portable heating or cooking device designed for outdoor use, has been used indoors.
• Seek advice from the Victorian Poisons Information Centre on 13 11 26. This is a 24/7 service that can assist in diagnosis and management of any suspected case.
• Advise the patient to arrange an urgent service and test of their gas appliances by a licensed or registered gas fitter before they are used again. If the incorrect use of a wood heater or other gas/petroleum fuelled appliance or item is suspected, advise the patient to stop its use immediately and refer them to this advisory.
• Advise the Environmental Health Unit, Department of Health on 1300 761 874 of all elevated results.

Source: State of Victoria Local Government 2

Families and visitors are invited to enjoy the magic of winter with a vibrant lineup of school holiday events including the spectacular Electric Wonderland in Rosalind Park.

Running from June 26 to July 12, Electric Wonderland will transform Rosalind Park into a dazzling immersive experience. With its enchanting installations and family-friendly atmosphere, the all-weather event has become a cherished seasonal tradition for locals and visitors alike.

The after-dark event features more awe-inspiring installations and hands-on experiences this year including:

• A giant magical snow-globe
• Interactive dance-pads with a fiery finale
• Projection portals to lose yourself in
• An immersive radiant reef of underwater creatures

Acting Director Strategy & Growth Jess Bridgfoot said there was a great mix of events lined up for the school holidays.

“Electric Wonderland has become a winter family tradition for many with awe-inspiring installations and hands-on experiences. CURIOSITY at the Discovery Centre lives up to its name with stunning installations and plenty of interactive zones to inspire kids and adults to play. The incredible Bluey stage show at the Ulumbarra will be a highlight this holiday for many families,” Ms Bridgfoot said.

“There are many free activities to keep the family entertained too, including the Brick by brick exhibition at the Living Arts Space, fun activities with the Play Passport. In Hargreaves Street Mall, enjoy the Australian Sheep & Wool pop up and TRAMpionship Mini Golf where you can test your golf skills with friends and family.”

For more things to do, or to purchase tickets, visit:

Source:

The Joint Standing Committee on Aboriginal and Torres Strait Islander Affairs will be holding a public hearing in Canberra on Friday 26 June 2026 for its inquiry into racism, hate and violence directed at Aboriginal and Torres Strait Islander people.

Source:

How does the House of Representatives work? What is the Australian legislative system? Who are the members? How do House committees operate?

If you’ve asked yourself these questions or have wanted to gain a better understanding of the House of Representatives, you are invited to attend the How the House Works seminar on Wednesday, 29 July 2026.

Source: Airservices Australia

Introduction

It is an honour to be asked to deliver this, the second Sir Douglas Copland Memorial Lecture. I must confess, however, that my topic owes more to the work of Bill Phillips than it does to Copland. Before you throw me out, let me try and convince you there are enough parallels to let me stay!

First, both Copland and Phillips came from rural backgrounds in New Zealand to become adopted sons of Australia. Copland was born in Otaio in the South Island but nearly his whole adult life was spent here, dominating economic affairs for a large part of the 20^th century. He was the driving force behind the foundation of the Economic Society of Australia and New Zealand, serving as its first president in the 1920s, and he chaired the expert committee behind the Premiers’ Plan in the 1930s, led the Commonwealth Prices Commission during the Second World War, and served as the inaugural professor of economics at the University of Tasmania, the founding Dean of commerce at the University of Melbourne, and the first Vice-Chancellor of the Australian National University (ANU). In 1933, on the recommendation of Keynes, he gave the first Alfred Marshall Memorial Lectures at Cambridge, then the most prestigious lecture series in global economics.

Phillips was born in Te Rehunga on the North Island and was a more sporadic visitor to Australia. His first trip, in the 1930s, sounds a lively affair, in which – violin in hand – he worked odd jobs across Australia, including as a crocodile hunter, a gold-mine electrician and a cinema operator! And towards the end of his career, he returned to Australia to take up a chair at the ANU. It would be perfect symmetry if Copland and Phillips had met. Sadly, however, your President Alex Millmow – a font of wisdom on Australian economic history – tells me this never happened: they were different generations and moved in different circles.

A second link is that both believed in a deeply practical conception of economics. Copland said ‘the economist must be an economist of the marketplace … he cannot afford the luxury of armchair theorising in a world that is crying out for practical guidance.’ And Phillips was a life-long engineer: he was an apprentice on one of the earliest hydroelectric power stations in New Zealand at the age of 15; graduated from the Institute of Electrical Engineers in 1938; and built a secret radio in extraordinarily dangerous circumstances while a prisoner of war in the early 1940s. He converted to the dismal science at the London School of Economics, but retained a lifelong engineering bent, most famously in his water-powered MONIAC machine built to demonstrate the workings of the macro-economy.

The third link, and the most important for my remarks today, is to the Reserve Bank of Australia (RBA). While Copland’s career largely predated the formation of the RBA, he was a passionate advocate for monetary activism. In the 1930s, he railed against the prevailing orthodoxy that placed the maintenance of external stability (i.e. the peg against sterling) above all else, arguing that achieving internal balance (including employment) should also have a role, through exchange rate flexibility and active (for which read expansionary) monetary tools. Later in his career, Copland came to have a more balanced view – recognising that demand could be too high relative to the economy’s productive capacity, as well as too low – driving higher inflation. Those two goals – of price stability and full employment – still shape the ‘dual mandate’ the RBA operates under today. And it was Phillips of course who became the first to describe the empirical relationship between those two goals, in his seminal 1958 paper. The RBA (or rather its predecessor, the Commonwealth Bank) was amongst the first to spot the importance of that finding, sponsoring Phillips to travel here in 1959 to lecture on his results and replicate them on Australian data.

Today, I want to revisit Phillips’ work. But in doing so, my focus will not be on his most famous and widely-debated finding – that inflation and unemployment tend to be inversely correlated – but instead on his insight that this relationship is nonlinear.

For decades, the fact that Phillips drew a curve and not a straight line was neglected in many academic and policy circles around the world, in favour of an assumption that, to a first approximation, the relationship could be treated as relatively linear and flat. Yet that assumption proved problematic – to put it politely – when, in the wake of Covid, inflation around the world leapt sharply and unexpectedly upwards, amid conditions of near-full employment. Debate still rages about the relative contribution of supply and demand factors to the post-Covid inflationary surge. But on the assumption that excess demand was at least part of the explanation, there has been a surge of new interest in Phillips’ findings, and a raft of theoretical and empirical work aimed at providing more robust micro-foundations for nonlinearity and integrating them into macroeconomic models.

In my remaining remarks, I want to summarise our current state of knowledge on this issue, drawing on research carried out at the RBA and elsewhere, before concluding with some reflections on the implications for monetary policy strategy.

Why curves trounce lines

Phillips’ original curve is a thing of beauty (Figure 1). Constructed using United Kingdom (UK) data from the 19^th and 20^th centuries, it captures the economic intuition that, in a tighter labour market (with lower rates of unemployment), employers must compete more for workers and offer higher wages. It also shows that this relationship is nonlinear: when unemployment is very low, wages typically rise quite rapidly; when it is high, they are more stable.

Phillips made little comment on the policy implications of his findings, preferring – as a lifelong engineer – to focus on the empirics. It was Paul Samuelson and Robert Solow, applying Phillips’ approach to United States (US) data, who fatefully called it a ‘menu of choice between different degrees of unemployment and price stability’ (Figure 2).

That led to one of the great showdowns of macroeconomic history, in which Milton Friedman argued that such policy trade-offs were an illusion in anything other than the short run. Attempts to hold unemployment persistently below its ‘natural rate’ would lead to a rise in inflation expectations, causing the curve to shift upwards. And that, in turn, would cause nominal wage growth to rise, returning unemployment to the natural rate, with higher inflation the only lasting effect (Figure 3). On this argument, the Phillips relationship was just a vertical line in the long run. Indeed, Robert Lucas and Thomas Sargent went on to argue that might hold even in the short run if expectations are formed rationally and prices are flexible. Such predictions proved uncomfortably prescient as inflation soared in the 1970s.

The downwardly-sloped Phillips curve was rehabilitated in the 1980s by the New Keynesians, who argued that, while the New Classicists might be right in the long run, a short-run trade-off could still exist if nominal prices and wages were sticky, or expectations were forward looking and people believed the central bank would provide a nominal anchor (Figure 4). Such principles continue to form the basis of most modern macroeconomic models today.

So Phillips’ legacy lived on? In part – but reflect for a moment on the contrast between his original curve in Figure 1, and the modern variants in Figures 2-4. While all four show some form of inverse relationship, only Phillips’ relationship is definitively a curve: suggesting that cost and price pressures rise more rapidly at lower levels of unemployment. The later descendants are all to a greater or lesser extent linear: suggesting that the trade-off is roughly the same at any level of unemployment.

How did this ironing-out happen?

There were multiple causes. In the 1970s and 80s, when the debate about inflation expectations dominated academic thinking, there seemed bigger things at stake than whether the relationship was curvy or straight. And during the so-called ‘Great Moderation’ that followed, relatively stable economic conditions suggested a function that was much straighter than Phillips found in a different era. Add in the fact that linear relationships were easier to integrate into quantitative models, and the case for sticking with lines rather than curves seemed sound.

But that proved a costly mistake. Persistently low and stable inflation in the pre-Covid period led many policymakers to conclude that the Phillips Curve they were facing was not only linear but also relatively flat. In other words, variations in activity and unemployment appeared to be associated with only limited changes in inflation. Any number of structural economic rationales were invoked to support the view that the curve had become flatter over time – including: the impact of globalisation and product market reform on competition; changes to labour market institutions; and well-anchored inflation expectations.

So, when inflation in many countries picked up sharply after Covid against a backdrop of generally low unemployment and expansionary monetary and fiscal policy, it came as a nasty surprise – despite being exactly what a nonlinear Phillips curve would predict. Of course, this coincided with, and was potentially compounded by, a supply shock that elevated and potentially steepened the Phillips curve, as I will discuss shortly.

Australia, and the RBA, had not forgotten Phillips’ original insight. A seminal paper by Guy Debelle and James Vickery, building on work started at the IMF by Doug Laxton and colleagues, showed that a nonlinear model fitted the Australian data better than a linear one – a result corroborated in more recent work by RBA colleagues (Graph 5). The RBA’s forecasting suite was therefore adapted to include a nonlinear Phillips curve.

But even these models underestimated the post-Covid pickup in inflation. Part of the reason for that was the difficulty of identifying and scaling the underlying impulse in real time, including differentiating between demand and supply shocks. But it also reflected the fact that the models couldn’t capture the nature of the nonlinearities fully. This reflected the fact that they were estimated over periods in which the economy was mainly on the flatter part of the Phillips curve, and that they didn’t account for how different sources of nonlinearity could lead to quite different shifts and shapes in the curve.

I draw two conclusions from this brief history. First, the nonlinearity of the Phillips curve is not a nerdy technical backwater: it has first-order implications for monetary policymakers. But, second, the details matter: it’s not enough to know the curve is nonlinear – we need to know how steep, what position, under what conditions it might shift or steepen, and how this interacts with policy.

Why is the Phillips curve nonlinear?

Recent research at the RBA and elsewhere has begun to throw more light on these crucial issues. Let’s start by assuming a Phillips curve with the following general form:

$${\pi }_t=\beta E_t\left({\pi }_{t+1}\right)+g\left({Ugap}_t\right)+u_t, where {Ugap}_t=f\left({MC}_t\right)$$

The slope and curvature of the Phillips curve comes from two sources: (a) the relationship f(.) between capacity pressures in the economy (proxied by the gap between unemployment and its natural rate, ${Ugap}_t$ ) and firms’ labour and non-labour costs $\left({MC}_t\right)$; and (b) the pass-through from costs to inflation, g(.). The final term $u_t$ represents a cost shock (e.g. an increase in the cost of imported goods) that exogenously pushes up inflation or costs. While it is treated as separate here, such shocks have the potential to change f(.) or g(.) – as I will discuss later.

But before I get to that, I should highlight the role of inflation expectations. While these don’t affect the shape of this simple Phillips curve, they can shift the curve up or down: Friedman’s key insight. That’s crucial for policy, since elevated inflation expectations can perpetuate inflationary shocks, raising the cost of returning inflation to target. But it also complicates empirical identification of the curve, since naïve estimates that fail to account for expectations might find signs of nonlinearity where none in fact exists. Debelle and Vickery’s early work tried to account for this directly using measures of expectations, while more recent RBA work used regional microdata, allowing them to partial out common expectations (Graph 5). Both found robust evidence for the Australian curve being nonlinear.

Nonlinearities in the relationship between capacity pressures and costs

One of the most widely cited rationales for nonlinearity in cost inflation is downward nominal wage rigidity, the observation that wages rarely fall in nominal terms. So, if the economy is already weak and wages growth very low, further weakening may have very little effect on wages growth. Conversely, when price inflation is higher or labour markets are tight, these constraints are less operative and wages may grow strongly in response to economic conditions. Phillips relied heavily on a version of this argument in his original paper, and it has been a mainstay of macroeconomic thinking ever since, including as a possible explanation for the apparent variation in the slope of the Phillips curve in recent years.

A second set of reasons relates to how labour market tightness is measured. While we often focus on unemployment, another measure of labour market tightness that economists often consider is the ratio of job vacancies to those available to fill them (i.e. the unemployed). If unemployment is low, but there are also few jobs to fill, pressure on wages may be low. But if vacancies are high when unemployment is low, firms may need to offer higher wages to attract workers. The relationship between vacancies and unemployment is known as the ‘Beveridge curve’, and is typically highly nonlinear, with the number of vacancies picking up sharply at low levels of unemployment as it becomes increasingly hard to fill roles from such a small pool of potential candidates (Graph 6). The convex relationship between vacancies and unemployment has been put forward as an explanation for both the apparent flatness of estimated Phillips curves pre-Covid and the steepness since.

A third potential source of nonlinearity is nonlinear hiring costs. By definition, hiring costs are zero when firms are not taking on new workers – whatever the unemployment level. But when firms start recruiting, hiring costs increase; and they may rise disproportionately as the labour market tightens, reflecting the increased effort required to find the right skills, and capacity constraints on recruiters and onboarding. As a result, marginal labour costs can accelerate quickly when labour markets are tight, but be quite flat when markets are weaker.

Recent work at the RBA has integrated these three labour market drivers into a single micro-founded model for Australia. The results show that convexity in wage rigidities, matching and hiring costs can reinforce each other, generating pronounced non-linearities in the relationship between unemployment and price inflation. This helps explain why relatively small changes in labour market conditions can sometimes coincide with high inflation outcomes, and less at other times when unemployment is higher. But these and other labour market frictions may also mean that trying to bring down unemployment quickly can lead to a sharp rise in inflation, even if unemployment is still elevated (Graph 7). That echoes Phillips’ intuition in his 1958 paper that wage growth might depend not just on the level of unemployment but also on its rate of change – a point I will return to later.

A final potential source of nonlinearity in the relationship between activity and firms’ costs comes from constraints in the supply of non-labour inputs. When such constraints bind, expanding output becomes very costly, causing firms to respond to stronger demand by raising prices, making the Phillips curve much steeper. Research from the US suggests that supply constraints may have accounted for as much as 2 percentage points of the pick-up in inflation following Covid. Recent work suggests that disruptions to critical supply nodes – or ‘bottlenecks’ – that are relied upon by a wide variety of industries can have a particularly pervasive effect, especially if they provide a focal point for inflation expectations.

Nonlinearities in the pass-through of costs to prices

A nonlinear Phillips curve may also arise from nonlinearities in the relationship between costs and prices.

Such effects may arise if firms adopt so-called state-contingent pricing. For a long period, New Keynesian models typically assumed that firms would only change their prices at fixed frequencies, given the costs involved. In Guillermo Calvo’s seminal 1983 paper, a stable share of firms change their prices every period, giving a constant percentage pass-through of (actual and expected) cost changes into aggregate prices and inflation. In such circumstances, the Phillips curve will be linear: the impact of a large cost shock is simply a scaled-up variant of a small shock.

However, empirical evidence using firm-level data sets suggests that the frequency of price changes depends on the state of the economy. Price resets are more likely during periods of higher inflation when firms’ costs are also rising quickly. Recent work at the RBA shows that the frequency of price changes in Australia increased substantially as inflation picked up post-Covid (Graph 8).

Such results seem intuitive: as input cost inflation rises, so does the burden on firms of holding their prices unchanged. At some threshold, when the costs of delay outweigh the (largely fixed) costs of changing, firms will face a strong incentive to pass on their cost increases into higher prices to avoid making losses – regardless of any normal schedule for price reviews that they might have. That has two implications. First, as domestic cost and capacity pressures increase, inflationary pressures will tend to rise more than proportionately, tracing out a nonlinear Phillips curve. But, second, the slope of that curve may steepen, at least for a period, in response to any large cost shock, regardless of the level of activity and unemployment. Once firms are already having to bite the bullet and change their price in response to the large cost increases, any further change in their costs, including due to shifts in demand, may get passed straight through to prices.

This isn’t purely academic. RBA colleagues have shown that increases in price setting frequency may have accounted for between ½ and 1¼ percentage points of the post-Covid pick-up in Australian inflation.

Advances in the theory and computing power available to model state-contingent pricing, coupled with the increasing availability of microdata evidence and recent inflationary episodes make this a very active area of research in academia and policy institutions.,

Some reflections on the implications for monetary policy strategy

The preceding analysis of the sources of nonlinearity in the Phillips curve suggests that inflationary pressures are likely to be higher for a given change in activity in one or more of three specific cases:

1. Case 1: if domestic capacity pressures and inflation are already elevated. Less-binding downward nominal rigidities, the nonlinear Beveridge curve, hiring costs, supply constraints and state-contingent pricing may all contribute to outsized inflationary effects as we move along the steep part of the (nonlinear) Phillips curve (Figure 9, point A to B).

1. Case 2: if cost shocks are large or persistent, the Phillips curve will shift upwards but it will also tend to steepen (Figure 10, point A to B) as firms pass through cost changes more fully and rapidly.
2. Case 3: if inflation expectations are elevated, either independently or as a result of the changes in cases 1 and 2, that will affect actual inflation through the decisions of price- and wage-setters, as Friedman showed, shifting up the Phillips curve (Figure 10, point A to C).

These cases can be mutually reinforcing. For example, pre-existing capacity pressures can make firms more sensitive to additional unanticipated cost pressures, amplifying the speed of pass-through.

What implications does this have for monetary policy?

In general, the more nonlinear the Phillips curve is, the stronger is the case for central banks who believe they are on the steeper part of the curve to take pro-active policy action to reduce excessive capacity pressures (Case 1), thereby also reducing vulnerabilities to cost shocks (Case 2) and helping to anchor inflation expectations (Case 3).

This framework helps to elucidate the Monetary Policy Board’s decisions to increase the cash rate target at each of our February, March and May meetings. The decision in February reflected concerns that we were sliding up the steeper part of the Phillips curve (Figure 9), as unexpectedly rapid increases in demand growth, coupled with anaemic growth in the economy’s supply potential, reduced spare capacity and increased inflationary pressures. Similar considerations applied in March, but were coupled with early concerns that the conflict in the Middle East (which had been underway for about a fortnight) might add a material adverse supply shock to pre-existing capacity pressures, posing upside risks to costs, prices and inflation expectations, further raising and steepening the Phillips curve (Figure 10). By May those concerns appeared to be crystallising, motivating a further tightening in the monetary stance alongside upside risks to inflation and inflation expectations.

The goal of tighter policy is to deliver a period of below-trend demand growth, reducing capacity pressures and returning inflation to target. But this is where being on the steeper part of the Phillips curve has a potential silver lining – because while it implies that increases in excess demand have a proportionally larger impact on inflation on the way up (Graph 11, red dots), it also implies that timely policy steps to reduce inflationary pressures, of the kind we have taken, should also have a proportionally smaller unemployment cost (or ‘sacrifice ratio’) on the way down. That beneficial effect should be further amplified if pre-emptive policy also helps anchor inflation expectations, preventing larger shifts upwards in the curve. Consistent with that, the baseline projection published in May suggested that inflation would return sustainably to the midpoint of the target range over the forecast period, with only a limited increase in unemployment (Graph 11, blue dots).

Of course, time has moved on since the May meeting, and there have been a number of important economic developments – not least the prospect of a possible resolution to the Middle East conflict. By itself, lower global oil prices would be a welcome development, helping to lower and flatten the Phillips curve somewhat. But a full resolution is not yet assured, and we still have work to do to reduce inflation here in Australia, which remains far too high. Beyond that, I have nothing to add on the economic or policy outlook over and above last week’s Board statement and press conference.

One important point that I do want to stress however is that the inflation nonlinearities that I have discussed in this speech are not the only nonlinearities in the economy. As I noted earlier, ongoing research at the RBA highlights that the same labour market frictions that lead to Phillips curve nonlinearities can also make it harder to bring unemployment down quickly, once it rises, without a sharp rise in inflation. That would be equivalent to an upward shift in the Phillips curve, with sustainable employment falling temporarily following a large negative demand shock (Graph 12). This work captures the old observation that ‘unemployment goes up by the elevator but down by the stairs’, something the downturn of the early 1990s vividly illustrated. The resulting labour market hysteresis effects can have long-lasting implications, particularly for young workers entering the labour market. Other nonlinear effects can also be important – including via household financial stress and nonlinear confidence effects.

In all of this, it is important to be humble. Much of this discussion assumes policymakers know the nature of the shock and the nonlinearity in real time. But that is a practical impossibility, even with a growing body of research. A decade later, for example, economists are still debating the cause of the apparent flattening in the Phillips curve over the 2010s – and I suspect we will still be debating the relative contribution of supply and demand shocks to the post-Covid inflation surge in a decade’s time. None of this is to dismiss the policy lessons from the literature on nonlinear Phillips curves, which proved so painful in the aftermath of Covid. Rather, it reinforces the importance of having as detailed an understanding of the mechanisms, and other factors that interact, when we make policy.

Conclusion

Let me conclude.

The resurgence of inflation after Covid was a painful reminder of one of Bill Phillips’ most important, but often neglected, insights: that the relationship between capacity pressures and inflation is nonlinear.

When an economy already near full capacity is hit by an inflationary shock, inflation may pick up quickly.

But knowing the curve is nonlinear is not enough: we also need to understand the underlying sources of that nonlinearity, and how that influences the curve’s position, shape and response to shocks. The RBA is making important contributions to this lively research effort.

We are also building those findings into our forecasting and policy thinking. In general, nonlinearities in the Phillips curve suggest that policy should respond proactively to an inflationary shock when we are already on the steep part of the curve – and that is what the Monetary Policy Board has done in recent months. The good news is that credible disinflation in such circumstances need not incur as large an activity cost as it would on a flatter part of the curve. But whether that transpires depends on the resolution of many other uncertainties. And, as I’ve discussed here, it is important to remember that there are many other nonlinearities in the economy, some of which work in the opposite direction (including hysteresis effects in the labour market).

Before I finish, I want to make one final link to Douglas Copland, in whose memory this lecture is being delivered. Copland was a lifelong advocate for the importance of deepening public understanding of economics. A charismatic and energetic writer and orator, he believed that economists who couldn’t (or wouldn’t) communicate were useless to society. Central banks, including the RBA, have made big strides on this front in recent years. But there’s always room for further improvement, especially in such uncertain economic times.

And that’s why we will shortly begin publishing a new ‘Insights’ series of notes authored by RBA staff – presenting their analysis on a range of topics relevant to our remit, showcasing more of the work done internally to underpin, test and challenge the assessments we make.

The aim is to throw light on a range of topics relevant to monetary policy and central banking in shorter ‘bite-sized’ format, complementing our more detailed research and analysis outputs. The first set of notes will cover topics relating to inflation dynamics, including some of the themes I have touched on today. We hope they will help to enrich and deepen understanding of these and other important issues.

With that, I thank you again for the invitation to give this lecture, and I hope your next lecturer can return to a more faithful treatment of Copland’s legacy!

Source: Victoria Country Fire Authority

Annual CFA women’s challenge camps have been taking place across the state giving the women of CFA a chance to come together, push their limits, and get inspired.

Submitted by	CFA Media