My Blog

Tag: Economics

  • House prices means interest rates do not need to rise much to inflict great costs

    But while that may have been a neutral rate in the past, the Centre’s Fiscal and Labour Market Policy Director Greg Jericho, notes in his column in Guardian Australia, recent surges in house prices means such a rise would place an extreme burdon on mortgage payers – one not conducive to an economy still in recovery. 

    It took nearly 6 years during the mining boom for the RBA to raise the cash rate by 300 basis points; currently the market anticipates the same rise occurring in 17 months.

    That would massively limit economic growth for little purpose at a time when wage rises remains below inflation, and rather unlikely to occur given the Reserve Bank’s recent hesitancy to slow the economy until real wage again start rising.

    The post House prices means interest rates do not need to rise much to inflict great costs appeared first on The Australia Institute's Centre for Future Work.

  • A slap-dash budget revealing a government with no idea why it is in power

    But as Fiscal and Labour Market Policy Director, Greg Jericho notes in his Guardian Australia column, the slap-dash and short-term nature of the measures reveals this government has lost any real reason for governing.

    From the extra bonus of the low-middle income tax offset with no taper, which is now being used by businesses to argue against raising the minimum wage and the relative lack of concern about those in poverty while trying to exist on JobSeeker, this budget has all the hallmarks of an effort made up at the last minute and where poll numbers were more important than any economic figures.

    The post A slap-dash budget revealing a government with no idea why it is in power appeared first on The Australia Institute's Centre for Future Work.

  • Alison Pennington: Budget billions wasted as real wages go backwards

    The federal government’s budget would have us believe that the cost of living is a sudden problem because of higher oil prices.

    But the real reason people are feeling the pinch is because their real wages are going backwards.

    The budget forecasts wage growth of 2.75 per cent in 2021-22, below inflation which is forecast to grow by 4.25 per cent. That’s a real wage cut of 1.5 per cent.

    The budget will increase the low-and-middle-income tax offset, but then scrap it at the end of this financial year. The fuel excise will be reduced for six months.

    Complex tax-bracket-shifting schemes are a good way to distract from powerful wage suppression policies. While we’re calculating “how much do I get”, these policies entrench insecure work, cap public sector pay, and stop collective bargaining. These measures hit workers every pay packet, not just at tax time.

    The amount workers get from the tax cuts is nothing compared to normal wage increases. For the 15 years to 2012, private-sector wages grew about 3.5 per cent per year. For someone on $70,000, that’s about $2500 more in one year.

    Distracting the income-strapped

    This budget is about trying to distract the income-strapped with temporary solutions that do nothing to help in the long-run. Alongside time-bound tax cuts are $250 one-off payments to income support recipients – thousands of people who permanently languish below the poverty line.

    The government is also hoping people believe in magical free-market fairies – that lower unemployment will finally unlock wages growth. As though holding a job automatically equips workers with bargaining power.

    The “record funding” fairies were out in full force, too. The Treasurer says “record funding” has been allocated in schools, hospitals, mental health, aged care, women’s safety and disability health. But if you reduce spending to rock-bottom, every marginal increase in spending with population growth can be called “record funding”.

    If it’s not enough funding to meet demand, then it can still be “record funding” for some. Shockingly, public school funding will be cut by $560 million over the next three years. Meanwhile, JobKeeper-subsidy-dripping private schools will get $2.6 billion more over the forward estimates. It’s not a budget without blows.

    Cuts to workers’ pay

    Worse, this budget signals more cuts to workers’ pay. The budget has earmarked reducing legislated minimum redundancy payments for part-time workers. This will disproportionately affect women.

    Women’s chronically low wages and poor job quality receive no attention. Hundreds of thousands of women in underfunded healthcare and social services need government to front up and fund their pay increases. This budget is proof the biggest barrier to Australian women’s progress isn’t glass ceilings, but their own government.

    This government will balls up any opportunity to address structural gender inequality. A new paid parental leave (PPL) scheme will combine the paltry two-week Dad and Partner Pay with the existing 18-week program for a combined 20 weeks. Packaged as empowering “family choice”, it will remove any incentive for fathers to take leave.

    PPL payment at minimum wage will continue to push women into primary caring roles. This is because men earn almost one-third more than women on average. That’s not women’s “choice”.

    Governments have wage-booting tools to deal with the higher cost of living. Across the ditch, New Zealand just increased the minimum wage by 6 per cent, recognising its frontline lowest-paid workers have offered the most in the pandemic, and been hit the hardest.

    Genuine cost-of-living help overlooked

    Along with boosting minimum wages, there are other options for helping workers deal with high inflation. The government could lower the cost of living by ending fee-for-service practices in all the areas they fund – child care, aged care, and disability care. Under the current government, out-of-pocket healthcare costs have increased almost three times more than CPI.

    And there’s not much hope for youth in this budget. Presented with a future of declining living standards, political dysfunction and ecological catastrophe, young people are given just $206 million in mental health funding. They can talk to someone on the phone while the world burns.

    The bottom rungs on the economic-opportunity ladder have been eliminated and youth can’t get up. Tens of thousands of educated capable youth languish in dead-end jobs. Sacrificed by a government that would rather turn unemployment into a misery industry than to create secure, career-building jobs.

    Billions of waste

    The government is wasting billions of dollars paying off their friends in business without conditions to invest in higher wages. Before this Budget, $291 billion in public spending was ploughed into a “business-led recovery” from COVID. On businesses responsibility to reinvest post-war record-high profits, there’s an eery silence.

    And in this budget, we have zero assurances new business subsidies will be invested in the real economy – people, capital, research – rather than more profit-padding.

    On budget eve, Morrison attempted to hat-tip a bygone conservative era. He said “families” will be key to winning the upcoming election. But he never invested in them, instead putting them in a pressure cooker of record-low wage growth and high living costs.

    The government was struck by enormous luck this budget. Extra revenue to play with and they’ve thrown it all away. Hundreds of billions in government spending and no era-defining economic reforms.

    Cos-of-living pressures wouldn’t be as acute if people had almost a decade of normal wages growth. But the truth is, the government has pursued wage suppression over the entire nine years it has been in power.

    The post Alison Pennington: Budget billions wasted as real wages go backwards appeared first on The Australia Institute's Centre for Future Work.

  • A short-term budget with no vision or coherency

    With the opportunity to use windfall gains in revenue to begin the fix of structural issues in the economy dealing with the low paid and essential services, the government instead has thrown money at voters in the hopes of re-election.

    The Centre’s Fiscal Director, Greg Jericho, goes through the budget numbers and finds that despite predictions of once again strong wage growth, the underlying assumptions are overly optimistic and would even still leave workers worse off than they were in the middle of 2019 until 2025.

    The budget forecasts are for strong growth now, while the money is being pumped out, but once that ends we find yourself back with the same middling growth we had prior to the pandemic.

    The post A short-term budget with no vision or coherency appeared first on The Australia Institute's Centre for Future Work.

  • Budget Analysis 2022-23: A Budget to Get to the Election

    This failure is all the more regrettable given the enormous discretionary fiscal resources which the government has at its disposal: the budget projects $133 billion in extra tax revenues over the next five years, compared to its MYEFO projections just three months ago, thanks to strong economic growth and rising nominal GDP. But instead of ploughing those revenues into reforming human services (like health, aged care, early child education, or disability services), undertaking a genuine policy to revitalise domestic manufacturing, or accelerating the energy transition, the government has prioritised one-time cash handouts to entice voters in the upcoming election.

    In this comprehensive budget overview, the Centre for Future Work’s team of economists unpacks the budget, considers its effects, and suggests alternatives.

    Our report reviews all aspects of the budget’s impacts on work and workers, including: wages, employment forecasts, vocational education and higher education, women workers and caring labour, labour standards enforcement, and manufacturing and energy jobs.

    Please also check out these rapid-response budget commentaries from two of our economists:

    “Six graphs that reveal the sugar-hit election strategy,” by Policy Director Greg Jericho in the Guardian Australia.

    “Budget billions wasted as real wages go backwards,” by Senior Economist Alison Pennington in The New Daily.

    The post Budget Analysis 2022-23 appeared first on The Australia Institute's Centre for Future Work.

  • Fragmentation & Photo-Ops: Australian Skills Policy Through COVID

    Analysis of VET system fragmentation and policy failures during COVID.

    Authors: Alison Pennington

    Download the full report.

  • New Research: Australia’s Skills System Continues to Crumble After COVID

    Australia’s vocational education and training (VET) system shows growing signs of erosion, fragmentation and dysfunction, according to new research from the Australia Institute’s Centre for Future Work.

    The research reveals a grim picture of a VET system starved of consistent funding or focus, fragmenting into scattered offerings of non-accredited and ‘micro-credential’ courses, mostly provided by private for-profit training companies. Furthermore, several high-profile government announcements during the pandemic designed to address skilled labour shortages have not altered the VET system’s worrying trajectory.

    Key findings:

    • The report recommends a stronger focus on a more pro-active, hands-on approach to workforce training and planning.
    • A new approach to training would support training in comprehensive, quality, accredited qualifications, rather than short-term fragments of training, with revitalised TAFE institutes leading the nation’s skills reconstruction process.
    • The report proposes that a minimum 70% of public VET funding be reallocated through the TAFE system.
    • New supports announced during COVID boosted government VET funding by $1.6 billion in 2019-20 from its five-year low. However deep and long-standing problems with Australia’s VET system have not been resolved – and in some cases, worsened.
    • All VET enrolment growth between 2015-20 has been in non-accredited training, growing by almost 70,000 enrolments, while properly regulated, accredited program enrolments have plunged by over 500,000.
    • Apprenticeship numbers showed a partial rebound in 2020-21 after eight years of marked decline – but Australia still has 173,000 fewer apprentices and trainees in training than it had in 2012, one-third below 2012 levels.
    • Empirical evidence shows rising apprenticeships ‘on the books’ are not being matched by any rise in completions. The number of apprenticeship and traineeship completions collapsed to a new low in the year ending June 2021, with just 77,000 completions – down almost two-thirds from 2013.
    • Government wage subsidies are creating strong incentives for employers to recycle heavily subsidised short-term apprentices. No requirements on employers to ensure apprentices finish programs, offer jobs after completion, and lower 5-10% subsidy rates under the government’s companion program Completing Apprenticeships combine to reinforce apprentice ‘churn’.
    • Three key feminised sectors facing huge shortages of qualified labour (nursing, education, and welfare programs) have all seen continued decline in numbers of apprentices.
    • Three in five (60%) new apprentices in-training over the year to June 2021 were men.
    • In 2021, the proportion of government-subsidised students studying with TAFE fell to less than half of all government-funded VET students (49%) – an historic low. 33% were attending for-profit private providers.
    • TAFE staffing and funding have also eroded further, as federal VET subsidies are diverted in favour of private for-profit providers. Failed market-based policies and TAFE defunding has seen over 8,800 full-time equivalent TAFE positions cut since 2012 across five states and territories.
    • Without renewed investment in TAFE programs, the significant annual economic benefits generated by the stock of TAFE-trained skilled workers in the labour force estimated at $92.5 billion per year will decay

    “Continued decline in enrolments and eight years of declining apprenticeship completions make it very clear: Australia’s domestic skills pipeline is in disarray,” said Alison Pennington, senior economist at the Australia Institute’s Centre for Future Work.

    “Deep failures in VET policy reflect broader failures of Australian economic policy to encourage far-sighted investments of any kind in the economy: physical capital, innovation, or skills.

    “Government COVID-era skills policies throw money at employers taking on apprentices and trainees, but have failed to fix the training system. There is no evidence the skills pipeline has been either protected or replenished under current VET policies.

    “Feminised industries with the most pressing labour shortages continue to see weak participation in accredited programs, traineeships, and apprenticeships. 3 in 5 of the additional apprentices and trainees in training over the year to June 2021 were men.

    “Once again, women’s jobs and demands have been deprioritised in favour of the optics of high-vis photo-ops.

    “Australia must commit to rebuilding the TAFE system’s leading role in reliable vocational education – the national skills policy infrastructure that can restore Australia’s long-term investment vision in its people, skills, and innovative sustainable industries.”

    The post New Research: Australia’s Skills System Continues to Crumble After COVID appeared first on The Australia Institute's Centre for Future Work.

  • In next week’s budget watch out for the tax cut that won’t cut your tax

    And while there will be the usual attempts to suggest better wages growth is just around the corner and those on low-to-middle income earners are benefitting the most, we should watch out for the almost guaranteed spin around tax cuts. 

    The Centre’s Fiscal Policy director, Greg Jericho, notes in his Guardian Australia column that the low-to-middle income tax offset (LMITO) was meant to be discarded when the Stage 2 tax cuts were introduced. However because doing so would have delivered no net benefit to people earning below $90,000 the government extended the offset in the 2020 budget. 

    It extended the offset again last year claiming it was providing tax relief to “10 million low-and-middle income earners” despite it actually doing nothing other than keeping the tax rate of those workers at the same level.

    We can expect the same to occur next week. 

    Budget spin is always a sight to behold, but we are now at the point where income earners are being told they are getting a tax cut that does not actually see them pay any less tax.

    Meanwhile the Stage 3 tax cut that will deliver a cut of up to 4.5% for those earning $200,000 remains in place.

    Spin and imaginary tax cuts for some; truly excessive tax cuts for others.

    The post In next week’s budget watch out for the tax cut that won’t cut your tax appeared first on The Australia Institute's Centre for Future Work.

  • Sustainable Industrial Jobs in the Hunter (aluminium)

    The report, by Jim Stanford (the Centre’s Director) and Alia Armistead, looks in detail at the Tomago aluminium smelter in the Hunter region of NSW. It is Australia’s largest smelter, and is currently powered through electricity mostly sourced from coal-fired generation. The facility has pledged to move to renewable power sources by 2030 – and the new report confirms that this would underpin long-term industrial and economic benefits felt in all parts of the country.

    The report reviews the worrisome deindustrailisation of Australia’s foothold in the global aluminium industry. Australia’s exports of raw bauxite have grown rapidly, but value-added aluminium manufacturing (including smelting) has declined. This undermines employment, exports, and spin-off jobs.

    The study also reports results of macroeconomic simulations of the overall impacts of the Tomago facility on the national economy (including employment, incomes, GDP, and government revenue). These effects, because of the economic linkages between the smelter, its supply chain, and the consumer goods and services industries which depend on its continued existence, are very large. Our results indicate the Tomago facility ultimately supports:

    • Over $1.2 billion in national GDP per year, with production benefits experienced in all states (70% in NSW).
    • Household disposable incomes of almost $500 million.
    • Direct and indirect employment of over 6000 jobs: in the smelter, in its various suppliers, and in downstream consumer industries.
    • Incremental government revenues worth $465 million per year: two-thirds of which is captured by the Commonwealth, and $120 million by the NSW state government.

    The study makes several recommendations for supporting Tomago’s transition to renewable energy, and enhancing Australia’s value-added aluminium presence. These include:

    • A clear and sustained commitment to rapid roll-out of renewable energy sources: Government should assist and accelerate Tomago’s transition to renewable power with clear, powerful measures to support expanded renewable energy developments, appropriate capacities (including batteries and pumped hydro) for backing up variable renewable power supplies, and fiscal measures that acknowledge the contribution Tomago could make (through the scale of its renewable energy purchases, as well as its potential role in demand-response measures that stabilise the regional electricity grid) to support NSW’s transition to renewable energy.
    • Full-cycle financial support and public equity: Our simulations confirm a large fiscal payback to state and Commonwealth governments arising from the operation of the Tomago smelter, its supply chain, and the downstream consumer industries which depend on its continued operation. This gives both levels of government a major fiscal stake in Tomago’s continuing operation. For that reason, in addition to supporting the roll-out of renewable energy, both governments should negotiate other forms of fiscal support for future capital improvements (including those tied to developments of renewable energy supply for the smelter).
    • Leveraging public infrastructure and procurement: Considerable demand for aluminium products will be forthcoming in future years as a result of the unprecedented investments being made by governments at all levels in new physical infrastructure: ranging from transportation to utilities to public buildings. The business case for continued aluminium manufacturing in Australia can be incrementally strengthened with pro-active efforts on the part of government to ensure that these investments (which are ultimately paid for by Australian taxpayers) embody maximum Australian-made content in all building materials and inputs, including aluminium.
    • A value-added trade policy: Australia’s laissez faire approach to international trade has concentrated Australia’s exports in the extraction and export of unprocessed or barely processed non-renewable resources; this has been coincident with a severe decline in domestic manufacturing and value-added activity, and a precarious dependence on imports to meet most domestic manufacturing needs. A rethinking of Australian trade policy could help reverse this damaging deindustrialisation. This must include active interventions to limit the inflow (often at prices below cost of production) of aluminium products from other countries which are not making reciprocal purchases of value-added merchandise from us. Trade policy should actively discourage exports of unprocessed bauxite, and instead require at least preliminary processing (and better yet, smelting) of Australian bauxite in Australian facilities.

    The post Sustainable Industrial Jobs in the Hunter appeared first on The Australia Institute's Centre for Future Work.

  • Flat wages and booming house prices cause housing affordability to plunge

    A decade ago the medium-priced house in Sydney was equivalent to 5.8 times the annual income of a median household; now it is 10.8 times that income. 

    Greg Jericho examines the issue in his column in Guardian Australia and drills down to look at the affordability of housing across the nation and finds a shocking, yet unsurprising tale – and one that deserves a much greater focus in the coming election campaign than is currently the case 

    https://www.datawrapper.de/_/GmaeJ/

    The post Flat wages and booming house prices cause housing affordability to plunge appeared first on The Australia Institute's Centre for Future Work.