Welcome to our Bumper October 2023 Client Bulletin
Contents
$20k deduction for ‘electrifying’ your business
Electricity is the new black. Gas and other fossil fuels are out. A new, limited incentive nudges business towards energy efficiency. We show you how to maximise the deduction!
The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. Fossil fuels are out, gas is out, electricity is the name of the game.
Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets.
How much?
Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year.
What qualifies?
The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied.
First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law.
If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024.
If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied:
- The asset must use electricity; and
- There is a new reasonably comparable asset that uses a fossil fuel available in the market; or
- It is more energy efficient than the asset it is replacing; or
- If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or
- It is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset.
If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions:
- It enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel;
- It enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source; or
- It facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source.
What doesn’t qualify?
Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded.
In addition, the following assets are specifically excluded from the rules:
- Assets, and expenditure on assets, that can use a fossil fuel;
- Assets, and expenditure on assets, which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels);
- Capital works (such as buildings and structural improvements);
- Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles;
- Assets and expenditure on an asset where expenditure on the asset is allocated to a software development pool; and
- Financing costs, including interest, payments in the nature of interest and expenses of borrowing.
What does qualify?
The legislation contains a few examples of what would qualify:
- Electrifying heating and cooling systems
- Upgrading to more efficient fridges and induction cooktops (for example replacing gas cook tops)
- Installing batteries and heat pumps
- Installing an electric reverse cycle air conditioner instead of a gas heater
- Replacing a coffee machine with a more energy efficient coffee machine if the manufacturer’s electricity consumption information supports this – keep the documentation!
- Thermal storage that can store heat or cold from a renewable source
- Solar thermal hot water system (assuming it meets the other criteria)
The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies.
The ‘Airbnb’ Tax
Property investors that choose to utilise their property for short-term stays (or leave it vacant) are firmly in the sights of the regulators.
The Victorian Government’s recent Housing Statement announced Australia’s first short-stay property tax. The additional tax, which is scheduled to come into effect from 1 January 2025, is expected to generate $70 million plus annually. The Short Stay Levy will be set at 7.5% of the short stay accommodation platforms’ revenue – so, a few days in Melbourne at $850 will cost an extra $63.75 taking the stay to $913.75.
According to the statement there are more than 36,000 short stay accommodation places – with almost half of these in regional Victoria. More than 29,000 of those places are entire homes.
Airbnb’s ANZ Country Manager Susan Wheeldon however says that “short-term rentals in Victoria make up less than one percent of total housing stock. Acute housing issues existed long before the founding of Airbnb, and targeting these properties is not a long term solution.”
Property investors are now braced for an onslaught of similar taxes at either the local Government or State level.
For Victorian investment property owners this comes after a temporary land tax surcharge from the 2024 land tax year and for those keeping a property vacant, an increase to the absentee owner surcharge rate from 2% to 4% including a reduction in the tax-free threshold from $300,000 to $50,000 (for non-trust absentee owners).
Some local Government taxes on Airbnb style accommodation will be removed once the new tax comes into effect.
Some Councils already impose a surcharge on short stay accommodation. Brisbane City Council for example imposed a 50% rate surcharge on properties listed for short-term rental for more than 60 days a year in their 2022-23 Budget, only to increase it to 65% in 2023-24.
What happens overseas?
Bed taxes in some form are not uncommon internationally but it is unusual to isolate one form of tourist accommodation from another as the Victorian Government have chosen to do. Also unusual is the 7.5% rate – many local taxes on short stay accommodation are in the 5% range (despite California’s Transient Occupancy Tax of up to 15% depending on the region you are staying).
Globally, the idea of taxing vacant and short-term accommodation is also not new.
In British Columbia, the Underused Housing Tax – a 1% tax on the ownership of vacant or underused housing introduced from 1 January 2022 – has been credited with increasing the rental stock by up to 20,000 properties.
Taking the alternative route to freeing up rental stock, New York introduced new rules in September 2023 that severely restrict Airbnb style accommodation options. Hosts need to register with the city if they offer accommodation for less than 30 consecutive days (unless their building is exempt as a hotel or accommodation establishment). Under the new rules the host must permanently reside in the property – entire properties will no longer be available – and, only two guests are allowed. The platforms are responsible for monitoring and enforcing compliance with the new rules.
New York is not alone in curbing the rise of short-term rentals. Amsterdam, Paris and San Francisco limit the number of days in a year an entire residence can be listed – between 30 and 90 days.
Closer to home in Byron Bay, the Byron Bay Council will limit “non hosted holiday letting to 60 days per year for most of the Shire” from 23 September 2024.
But do restrictions on Airbnb create rental stock?
According to Professor Nicole Gurran, from the University of Sydney’s School of Architecture, Design and Planning, if Australia is serious about controlling short-term rentals to solve Australia’s long-term rental crisis, then more needs to be done.
“In comparison to much of the international regulation of the short-term rental market, Australia is very “light touch”. The overarching aim is to encourage the tourism economy.
While this might have been appropriate five years ago when the rental market was in better shape, and long-term housing demand focused on inner city areas, the current crisis demands a new approach. Regulations must be tailored to the conditions of local housing markets, rather than the one-size-fits-all approach that exists today,” Professor Gurran says.
In a 2017 study, Professor Gurran and Professor Peter Phibbs found that, Airbnb absorbed 7% of stock in one Sydney municipality.
So, where is all this going? Governments are unlikely not to take advantage of the opportunity to share in what has become a lucrative short-term rental market. What that looks like will really depend on the States and Territories. Beyond revenue, further regulation is likely to ensure that private gain from short-term rentals is not at the expense of supply of long-term accommodation.
Self-education: What can you claim?
The Australian Taxation Office have released a new draft ruling on self-education expenses. We revisit the deductibility of self-education expenses and what you can and can’t claim.
If you undertake study that is connected to your work you can normally claim your costs of that study as a tax deduction – assuming your employer has not already picked up your expenses. There is also no limit to the value of the deduction you can claim. While this all sounds great and very encouraging there are still issues to consider before claiming your Harvard graduate degree, accommodation, and flights as a self-education expense.
Clients are often surprised by what cannot be claimed. Self-education expenses are not deductible if you are undertaking the education to obtain a new job or something not connected to how you earn your income now. Take the example of a nurse’s aide who attendees university to qualify as a registered nurse. The university degree and the expenses associated with degree are not deductible as the nursing degree is not sufficiently connected to their current role as a nurse’s aide.
The ATO have recently released a new draft ruling on self-education expenses. While the ruling does not introduce new rules, it does reinforce what the ATO will accept…and what they won’t.
Personal development courses
While not always the case, one of the key challenges in claiming deductions for self-development or personal development courses is that the knowledge or skills gained are often too general. Take the example of a manager who is having difficulty coping with work because of a stressful family situation. She pays for and attends a 4-week stress management course.
In that case, the stress management course is not deductible because the course was not designed to maintain or increase the skills or specific knowledge required in her current position.
When your employment ends part the way through your course
If your employment (or your income earning activity) ends part the way through completing a course, your expenses are only deductible up to the point that you stopped work. Anything from that point forward is not deductible (that is until you obtain a new role and assuming the course remains relevant).
Overseas trips with some work thrown in
Overseas study tours are deductible in limited circumstances. If you are travelling overseas, you need to prove that the dominant purpose of the trip is related to how you earn your income. Factors that help demonstrate this include the time devoted to the advancement of your work related knowledge, the trip not being merely recreational, and that the trip was requested by or supported by your employer. The ATO are strict on this. Take the example of a senior lecturer in history at a University. He takes a trip to China with his wife while on leave over the Christmas break to update his knowledge on his area of academic interest. While his job does not require him to undertake research, he incorporated some of the 600 photos he took and some of the learnings from the tour into the courses he teaches. Despite having a relationship to work, the trip is not deductible as, while relevant in some ways to his field of activity, it is incidental to the overall private and recreational nature of the trip.
Overseas conference with some recreation thrown in
We’ve all had them. Conferences where you spend a few days in sessions and then a day (or more) of touring or golf. When the dominant purpose of the trip is related directly to your work, then the ATO are more accommodating. If the leisure time, for example an afternoon tour organised by the conference, is incidental to the conference itself, then you can claim the full conference expenses.
Where you are extending your stay beyond the conference dates and this isn’t considered incidental, then you apportion the expenses and only claim the portion related to the conference. Let’s say you attend a conference for four days, then spend another four days on holiday. Assuming the conference is directly related to your work, you can claim your expenses related to the conference (assuming they were not picked up by your employer), and half of your airfare (as it’s a 50/50 split on how you spent your time between the conference and recreation).
Not fully deductible? Part of the course might qualify
If a particular course is not entirely deductible, a deduction may still be available for some of the course fees where there are particular subjects or modules in that course that are sufficiently related to your employment or income earning activities. In these cases, the course fees would be apportioned. Take the example of a civil engineer who is completing her MBA. While the MBA itself may not have a sufficient connection to her engineering role to be fully deductible, her expenses related to the project management subject she took as part of the degree could qualify.
Interaction with government assistance
If your course is a Commonwealth supported place, you cannot claim the course fees. But, the deductibility of course fees are not impacted merely because you borrow money to pay for those fees, for example a full-fee paying student using a government FEE-HELP loan to pay for course fees.
A warning on large claims
There is no limit on the amount you can claim as a self-education expense but the ATO is more likely to target large self-education expenses. For anyone who has completed post graduate study you know that these expenses can ratchet up very quickly, particularly when you add in any other expenses such as books or travel. It’s important to ensure that there is a clear connection between your current job or business activity and the self-education expenses before you claim them.
Airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible. Airfares are part of the cost of undertaking the self-education activities.
The case of the taxpayer who was paid too late
What a difference timing makes. A recent case before the Administrative Appeals Tribunal (AAT) is a reminder about the tax impact of the timing of employment income.
In this case, the taxpayer was a non-resident working in Kuwait. As part of his work, he was entitled to a ‘milestone bonus’ but, the employer was not in a position to pay the bonus at the time.
When the job ended, the taxpayer moved to Australia and became a resident. Once in Australia, the former employer honoured the performance bonus and paid it as a series of instalments.
The dispute between the ATO and the taxpayer started when the Commissioner issued amended assessments taxing the bonus payments received.
The dispute focused on when the bonus was derived. Had the bonus been derived while the taxpayer was still a non-resident then it would not have been taxed in Australia. This is because non-residents are normally only taxed in Australia on Australian sourced income. Employment income is typically sourced in the place where the work is performed (although there can be exceptions to this).
Australian tax case law says that employment income is normally derived on receipt. In the taxpayer’s case, this was when he received the payments from his former employer, not when he became entitled to the bonus. Because the taxpayer received the bonus when he was a tax resident of Australia, the bonus was subject to tax.
The difference for the taxpayer was quite dramatic. Had he been paid the bonus when it was due, he would have paid no tax as Kuwait does not impose income tax.
Please call us if you are concerned about tax residency or managing overseas income.
30% tax on super earnings above $3m
Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality.
The draft legislation appears largely unchanged from the Government’s original announcement.
The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.
The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.
From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one size fits all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax efficient vehicle.
Legislating the ‘objective’ of super
The proposed objective of superannuation released in recently released draft legislation is: ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.’
The significance of legislating the objective of super is that any future legislated changes to the superannuation system must be in line with this objective. It’s a fairly broad definition. For example, “equitable” seeks to address the distributional impact of superannuation policy. That is, latitude for the Government to target tax concessions to address differences in demographic factors and structural inequities including intergenerational inequity and outcomes for different groups including women, First Nations Australians, vulnerable members and low-income earners.
“Sustainable” encapsulates the changing needs of an ageing population including reducing the reliance on the Age Pension. The draft also alludes to the viability of the cost of tax concessions used to incentivise Australians to save for retirement.
“Deliver income” appears to reinforce the concept that superannuation savings “should be drawn down to provide individuals with a source of income during their retirement.”
More than 15 million Australians now have a superannuation account. Australia’s superannuation pool has grown from around $148 billion in 1992 to $3.5 trillion in 2023, and will continue to grow. Total superannuation balances as a proportion of GDP are projected to almost double from 116% in 2022–23 to around 218% of GDP by 2062-63.
The Billion Dollar TikTok Scandal
$1.7 billion paid out in fraudulent refunds, another $2.7bn in fraudulent claims stopped, around 56,000 alleged perpetrators and over 100 arrests to date. How did the TikTok tax scandal get out of control?
It was promoted as a victimless hack that delivered tens of thousands of dollars into your bank account. Like any hack, taking part was as simple as following the instructions. The streamlined process designed to make it easy for a small business to start-up under Australia’s self-assessment system, also made it easy for the ‘TikTok fraud’ to go viral.
How did it happen?
At some point in 2021, videos started to spread that spelt out how to get the Australian Taxation Office (ATO) to deliver money into your account. Not quite a loan but a hack that sometimes saw tens of thousands delivered into accounts, no questions asked. As the message gained traction, and with more and more people validating the hack, facilitators emerged. All you had to do was hand over your personal details to the facilitators and they would take care of the rest.
The fraud saw offenders inventing fake businesses, applying for an Australian Business Number (ABN), many in their own names, then submitting fictitious Business Activity Statements (BAS) to claim GST refunds.
By late 2021, the Banks noticed the uptick in suspicious activity, mostly large refunds that were out of character for those accounts – in some cases, Centrelink recipients receiving large credits from the ATO. The banks froze a number of accounts and reported the suspicious matters as they are required to do under the Anti-Money Laundering & Counter Terrorism legislation, including to the ATO.
In April 2022, the ATO formed Operation Protego to disrupt the rapid increase in GST refund fraud by individuals that were not genuinely in business. By that stage however, the strategy had gone viral.
By May 2022, the average GST refund paid was $20,000, claimed by around 40,000 people. The ATO conceded around $850 million had been paid out in potentially fraudulent claims. By June 2022, that figure had blown out to $1.2bn but the ATO had stemmed the flow, rejecting $1.7bn in fraudulent claims. Search warrants and arrests of scheme promoters followed.
It’s hard to understand how so many people – an estimated 56,000 Australians – made the leap in logic that some sort of hack had been discovered that enabled you to claim thousands of dollars in tax refunds as a ‘loan’ from the ATO. At the best of times the ATO is not known for its sporadic acts of generosity and laissez faire attitude to tax revenue. We know the opposite is true.
And, why so many accepted a view promoted on TikTok – the act of participating in the fraud required falsifying records at several stages and yet, failed to ring alarm bells. Unfortunately, naivety is not a compelling defence against fraud.
Caught in the web?
“The ATO has zero tolerance to any fraudulent or corrupt behaviour that may in any way impact the ATO.”
The TikTok tax fraud is extensive and has several layers of impact across the 56,000 taxpayers caught up in it.
The closest circle are the scheme promoters and facilitators. To date, more than 100 people have been arrested including members of outlaw motorcycle gangs, organised criminal organisations, and youth crime gangs – and more than 10 people have been convicted for their involvement.
The maximum penalty for promoting a tax fraud scheme is 10 years in prison.
The second circle are those actively engaged in the scheme – who declared that they were carrying on a business, established an ABN, and submitted GST refund claims for expenses they did not incur. For those who received fraudulent GST refunds, the money will need to be paid back, penalties are likely to apply, and there is a risk of criminal proceedings. If the ATO have contacted you, engagement will be the key to reducing penalties and preventing an escalation to criminal proceedings. If you were engaged in the GST refund fraud but the ATO has not contacted you yet, it will be important to work with us as soon as possible to declare and manage the issue.
Where to now for identify theft victims?
The third circle is comprised of the unwitting identity theft victims whose details have been used to generate fraudulent GST refunds. The ATO have had reports of people offering to buy and sell myGov details in order to access refunds. The conversation within the accounting community is that the ATO are inundated at present trying to manage the fallout, not just from the TikTok GST refund fraud but identity theft in general. So, keep on top of your myGov account and if you notice any unusual activity, contact us asap.
The TikTok fraud timeline
“Nobody is giving money away for free or offering loans that don’t need to be paid back.”
ATO Deputy Commissioner and Chief of the Serious Financial Crime Taskforce (SFCT) John Ford.
| Late 2021 | · Banks freeze suspicious accounts and refer unusual behaviour to ATO. |
| April 2022 | · Operation Protego formed |
| May 2022 | · ATO issue a warning on fake businesses, ABN applications and fraudulent business activity statements to generate GST refunds after around $850 million in potentially fraudulent payments made to around 40,000 individuals, with the average amount fraudulently claimed being $20,000. |
| June 2022 | · ATO tallies the cost of fraudulent claims at $1.2bn. Between April and June 2022, the ATO rejected $1.7bn in fraudulent claims.
· ATO launches coordinated action across three days in 12 locations across NSW, Victoria, Tasmania, South Australia, Western Australia, and Queensland, which saw warrants executed against 19 individuals suspected of being involved in GST fraud. |
| July 2022 | · ATO executes search warrants for five suspected offenders. |
| Dec 2022 | · ATO tallies fraudulent rejected claims at $2.5bn by more than 53,000 individuals. |
| Feb 2023 | · Warrants executed against 10 individuals suspected of promoting the fraud including on social media. |
| Aug 2023 | · ATO tallies fraudulent rejected claims at $2.7bn. |
The upshot to date; $2.7bn in fraudulent claims rejected before being paid, $1.7bn fraudulent payments made with around $66m recovered by 30 June 2022. Another $700m in liabilities, including around $300 million in penalties, raised in 2023-24.
The shape of Australia’s future
What will the Australian community look like in 40 years?
We look at the key takeaways from the Intergenerational Report.
The 2023 Intergenerational Report (IGR) is a crystal ball insight into what we can expect Australian society to look like in 40 years and the needs of the community as we grow and evolve. It doesn’t map out our path to flying cars and Jetsons style robotic domestic help (unfortunately) but it does forecast structural trends that will give many of us a level of anxiety about what we need to be doing now to successfully navigate the future.
The report links the continued growth and prosperity of Australia to five significant areas of influence:
We’re ageing
Thanks for the reminder. The number of people aged 65 and over will more than double and the number aged 85 and over will more than triple. We’re expected to live longer with the life expectancy of men increasing from 81.3 to 87 years and from 85.2 to 89.5 for women by 2062-63. And that’s a problem for the younger generation.
Who bears the burden of an ageing population?
Australia’s low birth rate, limited migration and increased longevity all have an impact. The old age percentage – the number of people aged 65 and over for every 100 people of traditional working age (15 to 64) in the population – will increase from 26.6% to 38.2%.
From a tax perspective, Australia’s reliance on personal tax means workers will bear an increasing proportion of the tax burden under current fiscal policy. In a recent interview, former Treasury boss Ken Henry labelled it an “intergenerational tragedy” with personal tax growing from 11.7% of GDP to 13.5% based on current policy. The report says that “only 12% of Australians aged 70 and over pay income tax and this age group now makes up 12.2% of the total population. This age group is expected to increase to 18.1% of the total population in 2062-63.” Wholesale tax reform will be required to prevent the growing tax burden on individuals dragging on the economy. With economic growth expected to slow to 2.2% from 3.1% over the next 40 years, the solution will not magically arise from corporate Australia. If it was not for our high rate of inflation you would think an increase to the GST was imminent.
Services and who pays
Demographic ageing alone is estimated to account for around 40% of the increase in Government spending over the next 40 years.
The outcome of an ageing population, as you would expect, is increased demand for care and support services that will push the Federal Budget back to a point where deficits are the norm if the current policies remain in place.
From a consumer perspective, it also means that the trend towards user-pays will only increase. As individuals, we need to ensure that we have the means to fund our old age because Government resources will be limited by increasing demand and this demand is funded by a deteriorating percentage of workers contributing to tax revenue.
It’s also likely that we will need to look at how we generate income. For some that might mean working longer, for others it is value adding – creating, buying and selling assets in some form, whether that is business, innovation, or through more traditional assets such as property or financial products.
Superannuation the size of a nation
Australia currently has the fourth largest pool of retirement assets in the world, with total superannuation balances projected to grow from 116% of GDP in 2022-23 to around 218% by 2062-63. Our superannuation system will be what underwrites retirement for most Australians. At present, around 70% of people over aged pension age receive some form of Government income support. Over time, and as our superannuation system matures, this percentage is expected to decline sharply as a percentage of GDP with Government support supplementing rather than providing for retirement (the first generation of workers with superannuation guarantee throughout their working life hit retirement age around 2058).
However, the IGR points out that, “the cost of superannuation concessions will increase, driven by earnings on the larger superannuation balances held by Australians.” The proposed tax on future earnings on super balances above $3m may not be the last.
You can expect the management of superannuation to be a priority for Government to ensure that retirement savings are maximised to reduce the reliance on Government support, and to ensure that this enormous pool is leveraged for the gain of not only members, but the nation.
Growth of services
Like most advanced economies, global competition has shifted Australia’s industrial base from the production of goods to services. Ninety percent of jobs are now in services.
With an ageing population, demand for health and care services is expected to soar. People aged 65 or older currently account for around 40% of total Australian health expenditure, despite being about 16% of the population. The IGR estimates that the workforce required to support this sector will need to be twice the size of what it is now to meet demand by 2049-50.
The Government’s biggest spending pressures will be health, aged care, the NDIS, defence and interest payments on government debt. Of these, the NDIS is the fastest growing at 7% per year.
The role of technology
The speed of technological change is difficult to predict, and the IGR doesn’t attempt to make predictions. But what we do know is that technology has had a transformational impact on labour productivity (the value of output of goods and services produced per hour of work). Over the last 30 years, labour productivity has accounted for around 70% of the growth in Australia’s real gross national income. But, tempering this is a slowing of labour productivity growth since the mid-2000s.
We know technological disruption is coming and the debate about the role of artificial intelligence is only just beginning. We also know that unless technology is accessible, our future will be one polarised by those who have and have not benefited from technological change.
Climate change transformation
There are two key aspects to climate change; the cost of rising temperatures, and the opportunity created by the shift to renewable energy.
Temperatures are anticipated to increase by 1.5 degrees before 2100, potentially before 2040.
From 1960 to 2018, climate disasters reduced annual labour productivity in the year they occurred by about 0.5% in advanced economies. However, for severe climate disasters labour productivity is estimated to be around 7% lower after three years. With rising temperatures, floods, bushfires and other extreme weather events are expected to increase in frequency and severity. The impact of climate change spelt out in the report is sobering with disruptions and changing patterns impacting agriculture, tourism, recreation and industries that rely on labour intensive outdoor work.
On the positive side, Australia could benefit from new “green” industries, such as hydrogen and other clean energy exports, critical minerals and green metals. It is also likely to drive new, innovative ideas as businesses invest in and develop low emissions technologies, providing a source of future productivity growth in a more sustainable economy. Australia’s potential to generate renewable energy more cheaply than many countries could also reduce costs for both new and traditional sectors, relative to the costs faced by other countries.
Geopolitical risks
Australia relies on open international markets. Trade disputes and military conflicts pose an external threat to Australia’s economy and well being. While the IGR cannot predict the nature of geopolitical events, it notes the importance of investing in national security, presumably this includes cybersecurity, ensuring access to international markets, and deepening regional partnerships to reduce supply chain vulnerabilities.
