Weak jobs, weak budget

Forget Tony Abbott’s boasts about how many jobs have been created since his government was elected.
The facts are that the labour market is weak, and the incentive for business to put on more staff is low (though the ANZ job ads survey out early this week indicated employers are increasingly looking to hire).
Not only has the unemployment rate (6.4 per cent last month) jumped to its highest point in almost 13 years, the average hours worked each week is stuck around a record low 31.7 hours.
In practice, it means there is plenty of scope for employers to bump up the hours of existing staff before they need to start thinking of hiring someone extra.
Today’s labour force figures simply reinforce Reserve Bank of Australia warnings that the growth outlook is underwhelming – the central bank expects the economy to have expanded by just 2.25 per cent in the 12 months to June this year, and doesn’t expect any major improvement until into 2016.
There are some positives. The exchange rate is hovering around $US0.76, interest rates are at a multi-decade low of 2.25 per cent, petrol prices have tumbled in recent weeks and consumer sentiment has jumped.
But the improved outlook of households is likely to be short-lived as worries about job security and political turmoil in Canberra drag on confidence.
Altogether, it is not a great time to be framing a federal budget, with little reason to think that the huge slowdown in revenues from company and personal income tax will be reversed any time soon.
If ever the nation needed to have a serious conversation about broadening the tax base and reigning in tax expenditures (which were worth $113 billion in 2009- 10 alone), this is the time.
As Stephen Bartos noted in testimony to the inquiry into the establishment of the Parliamentary Budget Office, “tax expenditures are the unloved orphan of fiscal scrutiny, paid little attention and not well understood and analysed”.
It is time to change that.

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3 Comments

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3 responses to “Weak jobs, weak budget

  1. Rob

    A really enjoyable piece as usual. A few observations:

    1. With the increasing use of social media web sites by companies for recruitment, Linkedin probably being the best example, the usefulness of the ANZ jobs ads data must be questionable.

    2. There is little doubt household income growth has/will slow following the end of the resources boom. This much is a given. However, on the issue of confidence, absolutely nothing can be purchased on the confidence credit card (is this is simply a proxy of the change in borrowing?)

    3. Whilst income growth has slowed, wealth, both real and financial, has grown strongly, particularly over the past year or so. This may serve to mitigate the impact of slowing household income.

    4. Finally, just a the steep rise in the terms of trade helped to boost the Government’s coffers (and reduce its expenditure, as employment improved), so the 25% decline in the terms of trade since its peak has gone some way to the Government persistently missing its fiscal targets. Further declines in commodity prices quid pro quo suggest the Government (of any colour) will continually have to find measures to restrain its fiscal deficit. Watch this space.

    • Hi Rob
      Thanks for reading my post, and for your comments.
      Good points.
      Fiscal policy can and should play a role in helping smooth out the peaks and troughs of the business cycle, but whoever is in government in coming years will have to get serious about revenues and spending.

      • Rob

        Could not agree more on the role of fiscal policy. There seems little doubt Government will have to get serious about tackling the deficit but, so far, efforts to do so have fallen by the political wayside. Going a stage further, while there is a strong economic case for changing the scope (not the rate) of the GST to more accurately reflect the change in spending patterns, the political will to do so may be lacking. My guess would be the can continues to get kicked down the road.

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