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.
Tag Archives: Abbott
Forget Tony Abbott’s boasts about how many jobs have been created since his government was elected.
The ugly position the Abbott Government finds itself in has been underlined by the latest tax revenue and public expenditure figures from the official statistician.
A lot of attention will probably be drawn to the 15 per cent plunge in tax receipts across all levels of government in the September quarter to less than $100 billion.
There is no doubt that tumbling commodity prices and weak wages growth are weighing heavily on the Budget ledger – Deloitte Access Economics reckons the write-downs will push the Budget deficit to $34.7 billion this financial year – $5 billion more than the Government forecast in May.
But the steep 15 per cent fall reported by the Australian Bureau of Statistics today is hardly unexpected – it happens every year at this time. Historically, the three months to September is the weakest quarter for tax collections, for the obvious reason that most corporations settle their annual tax bill in the June quarter.
What is more telling is the ABS’s assessment that Commonwealth spending (ex-defence) grew 2.2 per cent in the September quarter and is up more than a 1 per cent from where it was when the Coalition came to office little more than a year ago.
The Government will probably claim that this is because so many of its Budget savings measures have been stymied by a hostile Senate.
But they should not be let off the hook so easily.
Take the $7 Medicare co-payment proposal, which is languishing on the Government’s books and hasn’t even made it onto Parliament’s agenda yet.
The Government claims it will save $3.5 billion by slicing $5 from Medicare rebates for GP, pathology and diagnostic imaging services. But this money has not been slated to improve the Budget bottom line.
Instead, the revenue was to be directed to the Medical Research Future Fund, to provide a fig leaf for Tony Abbott’s pre-election pledge not to cut spending on health.
Other measures will take years to deliver savings, such as shifting more tertiary tuition costs onto students.
Ripping more than $1.8 billion out of public hospital funding is a significant (if short-sighted) savings measure, but it won’t really have a big impact on the bottom line until 2017-18, while abolishing programs and agencies, such as the Australian National Preventive Health Agency are mostly small beer (scrapping ANPHA will realise just $6.4 million in savings over four years).
Instead, the Government has lumbered itself with a raft of unnecessary costs arising from impulsive and ill-considered decisions affecting the machinery of government.
For instance, the Government reckons that – on paper, at least – abolishing AusAID and absorbing its functions within DFAT will save $397.2 million over four years.
But there are good reasons to question whether the savings will approach anything like that.
First of all, the savings were predicated on staff cuts, and DFAT offered attractive redundancy packages to entice people to leave. As at 30 June, 272 DFAT staff had accepted a voluntary redundancy. Tellingly, a majority (56 per cent) were 50 years or older and 55 per cent were executive level staff – so their payouts would not have been cheap.
Secondly, the entire process was a productivity killer. For months, nothing much was done as management worked out how to takeover would work, and sorted out the structure of the new, larger, organisation.
Third, the process has been a morale killer for many in the Department, further hitting productivity.
You can only wonder whether all these flow-on costs formed part of the calculation when the Budget was being drawn up. I suspect not.
A similar gag-handed decision is to relocate many of the functions of the Department of Agriculture to regional centres dotted across the country.
For an agrarian socialist, it sounds like a neat way of spreading jobs and encouraging economic activity in smaller regional centres.
But reality has a way of mugging such hopes.
There is the cost of breaking the lease on existing premises, locating and securing appropriate accommodation, assisting staff who are willing to relocate and paying out and replacing staff who are not.
Then there’s the increased expense of co-ordinating activities across and geographically dispersed and decentralised organisation – not least higher communication and travel expenses.
Then there is the challenge of luring appropriately skilled and experienced staff to work in these regional offices – not many rural communities will be flush with people experienced in, say, administering a grants program or overseeing research projects.
As the Government struggles to come up with a compelling narrative to pitch its forthcoming Mid-Year Economic and Fiscal Outlook, it will have seen precious few green shoots of hope regarding the Budget books.
As Reserve Bank of Australia Governor Glenn Stevens noted today, it will be “some time yet” before there is a sustained fall in unemployment, so growth in wages (and hence income tax revenue) will be weak for quite a while yet.
And desultory economic growth will not do much for corporate profits or tax receipts either.
If the Government wants to burnish the Budget books and chart a convincing path back to surplus, it will have to contemplate killing more than a few sacred cows, like the massive subsidies currently built into the system for superannuants and hugely expensive corporate tax breaks and handouts.
If Tony Abbott truly thought last May’s Budget was brave, then he and Joe Hockey will have to deliver something of Homeric proportions if they are serious about setting the Budget on a sustainable path.
Otherwise, we’ll just continue to bumble along on familiar our shambolic path of hasty, ill-conceived and partisan Budget decisions and just hope that something – another China, perhaps? – comes along to paper over the glaring inadequacies of the nation’s political class.
For the sake of global prosperity, you have to hope that the pro-growth commitments made by the visiting national leaders at Brisbane’s G20 are of a higher quality that those proposed by the host.
Laudable as the G20 goal is to boost collective growth among member countries by 2.1 per cent by 2018, it comes with a big asterix attached. There are measures whose benefits are difficult to quantify. There are measures that are contingent on the actions of others to come to fruition. There are measures whose prospects are definitely cloudy.
And then there are measures for which any claim of benefit is dubious, at best.
In this category belongs two measures the Australian Government has included in its contribution to the G20 growth goal – the introduction of a $7 co-payment for GP, pathology and diagnostic imaging services, and the deregulation of university fees. (Note of disclosure: I am currently employed by the Australian Medical Association, which is campaigning against the Government’s co-payment proposal).
It is hard to see how it can be argued that either, particularly the co-payment, will enhance growth.
Both are essentially exercises in cost-shifting – removing a liability from the Commonwealth’s books and putting it on to individuals.
In the case of the co-payment, patients face an extra $7 for each visit to their GP, while doctors are set to lose $5 from each Medicare rebate and incur extra practice costs arising from increased red tape and more patient bad debts.
In the case of university fee deregulation, an increased proportion of education costs are dumped onto students as a liability against future earnings – in effect, an increase in the tax on higher education.
Leaving aside arguments about the equity or economic efficiency of these policies, the grounds on which either could be said to contribute to growth appear weak.
It has been demonstrated that cost is a consideration for some when seeking health care, so upfront charges will discourage a proportion from seeing their GP – in fact, this was one of the Government’s explicit aims when announcing the policy.
Furthermore, though some patients might be going to see their doctor for what the Government considers to be frivolous reasons, most have legitimate health concerns.
Some of these might resolve themselves. But deterring people from seeking timely care raises the risk their health will deteriorate further and their problems become more complex, raising the likelihood of more dramatic and costlier care later on. Care in hospitals in multiple more times expensive than in a family doctor’s surgery.
Regarding university fees, it defies all that we know about price signals and human behaviour to suggest that ratcheting up university course fees will have no effect on demand.
Sure, university degrees are a sound investment in enhanced future earning capacity, so the incentive for individuals to incur larger debts for the lifelong advantage a degree confers is strong.
But as the cost of education goes up and wages growth slows, the cost-benefit equation because more finely balanced, and the weight given to other options increases – particularly from the viewpoint of someone with limited financial resources.
The Government argues that students won’t be required to begin repaying their debts until they start earning reasonable money, so any deterrence is overstated.
But even if higher fees don’t discourage many, the debts students will carry through much of their adulthood will have other significant economy-wide effects, including delaying the age at which they might begin a family or buy a house. These are major drivers of consumer spending, and by delaying or diminishing these activities, university fee deregulation will help undermine the strength of a major component of growth.
(The policy is also likely to turbocharge the brain drain, and heavily-indebted graduates increasingly look for better-paid opportunities offshore).
Prime Minister Tony Abbott said the fact that the OECD and the IMF will audit the progress of G20 countries in fulfilling their growth commitments will provide robust reassurance that the growth goal will be met.
But don’t expect the umpires to red card countries not seen to be pulling their weight.
Realpolitik means it is highly unlikely any G20 member will be marked down, especially when there are so many plausible get-out clauses and other excuses that countries can invoke.
Let’s face it, if the Australian Government can get away with calling a GP co-payment a growth measure, it is a pretty low base from which to start.
The ridiculousness of the Abbott Government’s industrial relations obsession has been thrown into stark relief by figures showing wages are growing at their slowest rate since at least 1997.
The Wage Price Index measured by the Australian Bureau of Statistics rose by 0.7 per cent in the December quarter, taking annual growth to 2.6 per cent – the lowest rate in the 16-year history of the series.
The result gives a lie to the inflated rhetoric about out-of-control wage claims blasted out by the Government in recent weeks as it has tried to pin the blame for a succession of high-profile factory closures such as SPC, Holden, Toyota and Alcoa on workers.
It is hard to have much confidence in the economic grasp of the Government while they carry on with their IR sideshow.
Sure, wages are part of Australia’s relatively high (by international comparison) cost base, but so are energy and other utility charges, transport costs, regulatory fees and so on.
Relatively high wages, by themselves, should not be automatically seen or portrayed as something bad and undesirable, as many IR obsessives try to make out. Just ask any merchant banker.
They become a concern where they are not supported by similarly high productivity, and that can be due to a combination of factors that include (but are not limited to) work practices, such as management and investment.
The recent mining investment boom provided a prime example. Resource companies, rushing to cash in on sky-high global commodity prices, threw enormous resources of labour and capital at the task of boosting production. Price was virtually no object. This had the effect of pushing up the cost of labour (wages) and the prices of goods and services.
In the short term, this helped push up labour casts and killed productivity. But as labour-intensive construction has ended and expanded mines and upgraded ports, roads and rail links have come into operation, export volumes have boomed.
In productivity terms, the amount of value produced by each worker left in the mining sector after the building crews have moved out has surged.
Across the economy, there is a need to lift productivity, but the tired old thinking of many in Government and business who automatically equate this with screwing down on wages and conditions needs to end.
Obviously, business models built solely on competing directly with low-cost manufacturers internationally are becoming increasingly unsustainable.
But the answer isn’t to attack wages and conditions.
By many measures, Australia has a highly skilled, flexible and productive workforce.
Employers in both the public and private sectors get an enormous, they rarely acknowledged, subsidy from employees who regularly work many more hours than they are paid for.
Crude calculations using ABS employment and aggregate hours worked figures show that each employee worked an average of 35.5 hours a week in January. Take into account that around a third of these workers were part-time, and that January is traditionally a holiday period, and it suggests that a substantial proportion of the workforce work longer than the ‘standard’ 37.5 hour week, and many are likely to do so without paid overtime.
Another measure is time lost to industrial disputes. Official figures show that in the 12 months to the September 2013 quarter, an average of just 3 working days were lost to industrial disputes for every 1000 workers. These are not the numbers you would expect to see from a habitually disruptive workforce.
As was discussed in an earlier blog, Time to curb outrageous salaries – or lift investment?, labour is losing out to capital in grabbing a share of earnings. The Economist cited figures from the Organisation of Economic Cooperation and Development showing that labour captured 62 per cent of all income in the 2000s, down from more than 66 per cent in the early 1990s.
Yes, the nation has a productivity challenge. And yes, workers have a role to play in lifting productivity.
But maybe employers and managers should cast a critical eye over their own remuneration and ways of operating, rather than simply pencilling in cuts to the pay and conditions of their employees.
As the Abbott Government’s Commission of Audit hunts for spending cuts and bureaucratic flab, the latest national accounts might give it some pause for thought about how zealous it should be.
The figures show that public spending added a hefty 1.3 percentage points to growth in the September quarter – without this contribution the already decidedly-anaemic GDP numbers (up 0.6 per cent in the quarter, 2.3 per cent for 12 months) would have been much worse.
As the numbers make clear, this is a fragile time for the economy, with a hesitant transition underway from mining investment toward other sources of growth.
Housing activity is strengthening, but the lift in the household savings ratio to 11.1 per cent is a fair indicator that although consumer confidence is improving, people remain cautious. (No doubt the urge to save was heightened by the air of uncertainty that surrounds any federal election, but the tepid labour market is probably a more lasting influence).
There are undoubtedly savings to be had in public spending, but in the zeal to make cuts, the Government needs to keep in mind that the public sector is not just a cost centre – it purchases goods and services, and it employs people, giving them the wherewithal to make their own purchases.
Australia is a long, long way from southern Europe, geographically and economically, but the experience of countries like Greece and Spain show that ill-timed austerity can make things far worse.