My Blog

Tag: Economics

  • The Reserve Bank needs to wait before raising rates again

    In 8 months the Reserve Bank raised the cash rate from 0.1% to 3.1% in an effort to slow inflation growth which has been increasing around the world. But while many things in the economy remain affected by the pandemic and its ructions, the impact of interest rate rises remains the same.

    As policy director, Greg Jericho notes in his column in Guardian Australia, the latest lending data reveals that home loan numbers have fallen by 25% over the past year. The cost of repaying an average new mortgage in Sydney or $750,000 has increased by more than third and as a result fewer people are taking out loans and house prices are falling.

    This fall in the price of the item most directly affected by interest rates however is not reflected in the official CPI figures. Rather than measure house prices, the CPI measures the cost of “new dwelling purchases by owner-occupiers”. This is actually the cost of building a new home. In the year to September 2022 (the most recent CPI figures) this item accounted for a quarter of the total growth of inflation. And yet while “new dwelling purchases” rose by 21% the price of dwellings across Australia rose by just 1%.

    This means that inflation is not truly reflecting the impact of interest rates. Rising interest rates do slow the economy, they do reduce the level of money available to mortgage holders to spend on other item and thus reduce demand. That the official CPI figures are not fully showing this does not mean the Reserve Bank needs to keep raising rates.

    The Reserve Bank has already raised rates at a historically fast pace. They have slammed on the brakes as hard as they have at any time in the past 30 years. Given economists around the world are predicting a slowdown in the global economy and here in Australia, the RBA needs to pause its rate rises and not keep hitting the brakes on an already slowing economy.

    The post The Reserve Bank needs to wait before raising rates again appeared first on The Australia Institute's Centre for Future Work.

  • A new tool reveals how badly the Stage 3 cuts mismanage the budget

    Just before Christmas last month the Parliamentary Budget Office released a “Build Your Own Budget” tool that reveals the interactions of taxes, spending and economic conditions that go into determining the budget balance.

    While the tool is an invaluable device for economists, its real value as noted by Labour Market and Fiscal Policy Director Greg Jericho, is how it highlights the massive cost of the Stage 3 tax cuts.

    In his Guardian Australian column, Jericho notes that the Stage 3 tax debate has become about all-or-nothing rather than realising the $300bn cost of the tax cuts over 9 years provides an opportunity for the Albanese government to amend the tax cuts and also increase support for benefits and government services.

    The Stage 3 tax cuts are so expensive that the PBO’s budget tool reveals you could raise Jobseeker from its current rate of $668 a fortnight to $1,925 and the budget deficit in 2032-33 would still be lower than it is currently predicted to be with the Stage 3 tax cuts.

    The Stage 3 tax cuts could be amended to reduce the 32.5% tax rate for earnings between $45,000 to $120,000 to 30% and still raise the top tax threshold from $180,000 to $200,000. These still very large tax cuts would cost $120bn less over the first 9 years than would the Stage 3 cuts. That would enable the government to, for example, increase Jobseeker to $1,025 and still have a better budget position than current predicted with the Stage 3 cuts.

    This highlights just how many options are available to the government.

    Budget are about choices, government is about choices. The Albanese government has a massive choice to make – either continue with the Stage 3 tax cuts that massive hit the budget for little reason other than to hand wealthy people a huge tax cut, or it can take this opportunity to create a fairer economy and society.

    The post A new tool reveals how badly the Stage 3 cuts mismanage the budget appeared first on The Australia Institute's Centre for Future Work.

  • Inequality and poverty is a policy choice – and the Stage 3 tax cuts will make both worse

    Much has been made in the debate around the Stage 3 Tax Cut that the cuts themselves massively favour the wealthy and make our income tax system less progressive. But as Policy Director, Greg Jericho, notes in his Guardian Australia column the latest survey of Household Income Distribution reveals that is only the beginning of the problem.

    Taxation works to redistribute the national income, but taxes alone play only a small part. The real work in lowering inequality and raising people out of poverty comes from government benefits and crucially the provision of government services like public health and education.

    The poorest 20% of households have just 4.1% of all private household income in Australia. After taxes, this rises to 4.7%. Once you include government benefits it rises even more to 8.1%. But when you also include the dollar value of public education, health and other government services it rises to 12.1%.

    Without properly funded broad government services, Australia’s society would be much less equal as low t middle income households would be forced to battle the private sector for access to vital services.

    Given the massive cost of the Stage 3 tax cuts, which in their initial year cost $17.7bn – roughly the same as the cost of the PBS, and $6.2bn more than the federal government will spend that year on public schools – the policy threatens to not just make the tax system less fair, it will also significantly affect the ability of the government to provide the necessary services that create a better and fairer society.

    The post Inequality and poverty is a policy choice – and the Stage 3 tax cuts will make both worse appeared first on The Australia Institute's Centre for Future Work.

  • Lost at Sea: Productivity Commission’s Container Port Report

    By several indicators, Australian container ports have demonstrated superior and globally competitive productivity performance, including:

    • 7.8% annual compound growth in number of containers handled.
    • 3.6% annual compound growth in containers handled per hour of work (more than twice average productivity growth in the broader economy).
    • 5.9% annual compound growth in equivalent container units handled per crane.

    The Productivity Commission’s claims that Australian ports are not ‘technically efficient’ rests on a faulty methodology which assumes that ports should minimise use of productive inputs (including land, capital, and labour) to meet any given volume of traffic. But in the real maritime logistics industry, other criteria – including ship turnaround time, and ability to respond to fluctuations in demand – are more essential for shippers.

    “Even the Commission’s own abstract modeling confirms that Australian ports can be as efficient, or more efficient, than global benchmarks,” said Dr Toner. “By more practical measures such as turnaround time, flexibility to accept fluctuations in volume, and safety, Australian ports are both efficient and productive.”

    The report was especially critical of the Productivity Commission’s blanket assertion that unspecified industrial relations practices in Australian ports are the source of purported ‘technical inefficiency.’’

    “The Productivity Commission report provides no hard evidence that workplace practices are reducing productivity in our ports,” Dr Toner added. “Its assertions are unbalanced, and reflect an ideological predisposition to blame unions rather than being based on careful empirical analysis.”

    Dr Toner’s 50-page report highlights numerous methodological problems and inconsistencies in the Productivity Commission’s analysis of port productivity. It concludes by urging the current Commonwealth government to reject the Commission’s draft recommendation to revise the Fair Work Act in order to restrict collective bargaining and industrial activity in ports and related activities.

    The Commission’s inquiry into port productivity was commissioned before the 2022 federal election by the former Coalition federal government. Its draft report was released in September.

    The post Lost at Sea appeared first on The Australia Institute's Centre for Future Work.

  • The economy is slowing as the Reserve Bank hits the brake

    The September quarter GDP figures reinforced the precarious nature of Australia’s economy.

    The annual GDP growth of 5.6% is extremely strong, but as Fiscal and Labour market policy director, Greg Jericho notes in his Guardian Australia column, the past three quarters have seen a slowing of growth with the economy growing just 0.6% in the September quarter.

    Largely the economy has been supported by household spending, and yet even here we see a slowing as household disposable income fails to keep pace with inflation.

    All of this comes at a period when the Reserve Bank is slamming on the brakes. Since the end of the September quarter the Reserve Bank has raised the cash rate by 75 basis points. And given that the impact of the rate rises in August and September would not be fully realised in the September quarter GDP figures, the economy is likely to keep slowing for some time more.

    The national accounts reveal that much of the inflation in the economy is in areas outside of the influence of the RBA – imports and energy costs – while areas such as house prices that are affected by rate rises have already slowed sharply.

    Given that household saving levels are back where they were prior to the pandemic, this means household spending must come from real growth in incomes. That will be hard to sustain if the economy slows further.

    The rate rises have already slowed the economy and with more rises and more slowing on the way, that makes 2023 a worrying year ahead.

    The post The economy is slowing as the Reserve Bank hits the brake appeared first on The Australia Institute's Centre for Future Work.

  • The Reserve Bank needs to watch that it doesn’t push the economy off a cliff

    But as Labour Market and Fiscal Policy Director, Greg Jericho, notes in his Guardian Australia column, the latest monthly inflation figures out yesterday suggest that maybe the peak could be lower than anticipated.

    While the monthly figures can be a little erratic, they do closely align with the quarterly “official” CPI figures and in October the ABS estimates that annual inflation growth fell from 7.3% to 6.9%. Better still this makes 4 months in a row where inflation has remained around 7%, rather than increasing quickly as it has since the middle of last year.

    Combined with the latest Retail Trade figures released this week which showed the dollar amount spent in the shops fell in October, and the volume of spending falling even faster, there are solid signs that the interest rate rises are having an impact.

    This means the Reserve Bank needs to be very cautious as much of the impact of the rate rises from September October and November has yet to flow through into the data. And because the rates of existing mortgages take longer to rise than do rates for new home loans this also means that even were the RBA to halt rate rises, for most mortgage holders rates will still be about to rise over the next few months.

    The IMF, OECD, Treasury and the RBA itself all forecast a sharp slowing of Australia’s economy next year and into 2024. The rationale has been that this is the cost of needing to reduce inflation, but the central bank needs to be very careful that it does not commit overkill. With the economy and consumer spending already slowing, and inflation showing some good signs that growth is no longer increasing at a rapid rate, the RBA should strongly consider not increasing the rate next week in its final board meeting of the year.

    The post The Reserve Bank needs to watch that it doesn’t push the economy off a cliff appeared first on The Australia Institute's Centre for Future Work.

  • Deal on IR Reforms Sets Stage for Faster Wage Growth

    A legislative consensus reached over the weekend to approve reforms to industrial relations laws sets the stage for rebuilding collective bargaining and a significant acceleration of wage growth, according to research from the Australia Institute’s Centre for Future Work.

    “These reforms will lift wage growth and improve fairness in workplaces across Australia, big and small, in all sectors of the economy,” said Dr Jim Stanford, Economist and Director of the Centre for Future Work.

    “These measures will rebuild collective bargaining, enhance gender equity, ensure greater transparency, and equip workers with critical tools to pursue fair treatment,” Dr Stanford said.

    Research published by the Centre for Future Work suggests collective bargaining coverage will rebound under the new laws, which will allow for multi-employer collective bargaining in certain circumstances. Bargaining coverage in Australia has declined dramatically since 2013, with just 11% of private sector workers now covered by a current enterprise agreement. That fall in coverage has been the largest single cause of record-slow wage growth over the last decade.

    Based on the historical relationship between bargaining coverage and wage growth, rebuilding coverage toward pre-2013 levels will lift nominal wage growth by 1.6 percentage points per year. Additional wage growth of that magnitude would lift annual incomes for a typical worker by almost $1500 in just one year, and a cumulative total of almost $24,000 over five years.

    Another provision in the reform package is a new limit on the ability of employers to unilaterally terminate expired enterprise agreements during their renegotiation. Many employers have used this loophole to wipe out years of collective bargaining gains. A recent example was Qantas’s threat earlier this year to terminate its agreement for cabin crew. Centre for Future Work modeling shows that could have cost senior staff as much as $67,000 per year. This so-called ‘nuclear option’ in employers’ arsenal will be prohibited under the new laws.

    “With the post-pandemic acceleration of inflation, many years of wage stagnation have now tipped over into the fastest decline in real wages in Australian history,” said Dr Stanford.

    “This bill is a needed and timely response to an unprecedented crisis in workers’ living standards.

    “I congratulate the legislators, including Minister Tony Burke, Greens Leader Adam Bandt, and Senator David Pocock, for negotiating this package and working to approve it in Parliament,” Dr Stanford said.

    The post Deal on IR Reforms Sets Stage for Faster Wage Growth appeared first on The Australia Institute's Centre for Future Work.

  • Australians Working 6 Weeks Unpaid Overtime, Costing Economy Over $92 Billion: GHOTD Report

    New research shows Australian workers are on average working 6 weeks unpaid overtime per year, costing over $92 billion dollars in unpaid wages across the economy. The average worker is losing over $8,000 per year or $315 per fortnight due to what researchers have branded “time theft”.

    23 November 2022 marks Go Home on Time Day, an initiative run by the Australia Institute’s Centre for Future Work, and now in its fourteenth year.

    Economists have recommended a ‘Right to Disconnect’ to tackle what they say is the systemic problem of unpaid overtime. The research reveals that employers are profiting from 2.5 billion hours of time theft worth over $92 billion in unpaid wages amid a cost-of-living crisis and declining real wages.

    Key Findings:

    • The average Australian worker performs 6 weeks unpaid overtime per year, worth over $8,000 per worker per year
    • The ‘Right to Disconnect’ is supported by six in seven (84%) workers, and has recently been recommended by the Senate Select Committee on Work & Care
    • Across the workforce, this equates to $92 billion in lost income per year, roughly the same as the Commonwealth’s annual expenditure on healthcare
    • Workers share of national income is at an all-time low of 44% in 2022, while the profit share of income is at an almost record high of 30%
    • Respondents reported 4.3 hours of unpaid work per week, equivalent to 15% of total working hours. This equates to 224.3 hours per year per worker, or six standard 38- hour work weeks.
    • Across the whole labour market, over half of all workers (56%) are unsatisfied with their working hours
    • Almost one in two (46%) workers in Australia reported that they wanted more paid hours
    • 84% workers support the Federal Government legislating a ‘Right to Disconnect’ that directs employers to avoid contacting workers outside of work hours, unless in an emergency, with only 8% who oppose

    Negative impacts from unpaid overtime:

    • The most commonly experienced negative consequences were physical tiredness (35%), followed by stress and anxiety (32%), and being mentally drained (31%), each affecting around a third of workers.
    • Over a quarter of workers reported that overtime interfered with their personal life and relationships (27%), and 17% responded that it led to disrupted or unfulfilling non-work time.
    • One in five workers identified that working outside scheduled hours negatively affected their relationship with work, with 22% who reported reduced motivation to work and 19% experienced poor job satisfaction.

    “Our research shows unpaid overtime is a systemic, multibillion-dollar problem which robs Australian workers of time and money,” said Eliza Littleton, research economist at the Australia Institute and report author.

    “This is time theft. Unpaid overtime harms our quality of life and reduces our time with family, friends, and those we care for.

    “This Go Home on Time Day, our research reveals that unpaid overtime is robbing Australian workers and the economy of over $92 billion per year. This time theft only further exacerbates our current cost of living crisis.

    “With workers share of national income at the lowest point ever, a focus on reducing unpaid overtime would improve quality of life and ease the cost of living pressure for millions.

    “The prevalence of overtime suggests that ‘availability creep’ has eroded the boundaries between work and life.

    “Workplace laws could be updated, including creating a ‘Right to Disconnect’ as recommended by the Senate Select Committee into Work & Care, and as exists for employees of Victoria Police, and Queensland Teachers”

    The post Australians Working 6 Weeks Unpaid Overtime, Costing Economy Over $92 Billion: Go Home on Time Day Report appeared first on The Australia Institute's Centre for Future Work.

  • Theft By Any Other Name: GHOTD 2022

    Go Home on Time Day 2022 — Australians working 6 weeks unpaid overtime.

    Authors: Littleton, Raynes

    Download the full report.

  • Call Me Maybe (Not): Working Overtime & Right to Disconnect

    The survey results presented in this report show that overtime is a prevalent and systemic issue in Australia, primarily driven by working conditions within the control of employers.

    • Seven in ten (71%) workers reported having performed work outside of scheduled working hours. While only 29% of workers indicated that they have not done overtime.
    • Of those who completed overtime, the largest share performed overtime often, as opposed to sometimes, rarely, or never.
      • Almost half (44%) reported often performing overtime to meet employer expectations, and another 31% performed overtime sometimes.
      • Overtime was fairly evenly spread across industries and occupations, suggesting it is not an isolated issue that can be resolved with a targeted solution.
    • The incidence and frequency of overtime are more common among men, young people, those with full-time jobs, and those in goods producing sectors or working as managers.
    • The most common reasons workers perform overtime were having too much work (36%), followed by staff shortages (28%), less interruptions working outside normal hours (26%), and managers’ or supervisors’ expectations (23%).
    • Over a third of workers (38%) reported that overtime was an expectation in their workplaces.

    Overtime doesn’t come without cost: it has significant consequences for workers, their families, and for society more broadly.

    • The most commonly experienced negative consequences of overtime work were physical tiredness (35%), followed by stress and anxiety (32%), and being mentally drained (31%), each affecting around a third of workers.
    • Over a quarter of workers reported that overtime interfered with their personal life and relationships (27%), and 17% responded that it led to disrupted or unfulfilling non-work time.
    • One in five workers identified that working outside scheduled hours negatively affected their relationship with work; 22% reported reduced motivation to work, and 19% experienced poor job satisfaction.

    Australia has enterprise agreements, modern awards, and national employment standards that are intended to set out limitations on working times. However, the prevalence of overtime suggests that Australia’s industrial relations systems are not properly protecting the boundaries between work and non-work time for many workers. In particular, existing laws have done little to prevent the creep of work into private time, aided by technology. This is why workers, employers, unions, and governments around the world have been looking at how to implement a ‘right to disconnect’.

    Our survey found considerable support amongst Australia workers for a right to disconnect.

    • Six in seven (84%) workers expressed support for the Federal Government to nationally legislate a right to disconnect that directs employers to avoid contacting workers outside of work hours, unless in an emergency.
      • Only 8% opposed the idea of a right to disconnect.

    A right to disconnect could take several forms, and be implemented via different avenues in Australia. Based on international examples and the attitudes of workers in Australia, this report finds that implementing the right within the national employment standards would be the most effective.

    • Four in five (80%) workers thought that a right to disconnect would be effective if legislated in national employment standards, making it the avenue viewed as effective by the most workers.

    This report provides strong evidence for the government to pursue a right to disconnect as a way of limiting the creep of work into non-work time.

    The post Call Me Maybe (Not) appeared first on The Australia Institute's Centre for Future Work.