Australia faces medium-term challenges of paying for the things it wants to do as a society and finding enough workers as the population ages, Reserve Bank Governor Glenn Stevens says.
Stevens strongly backed Treasury Secretary Martin Parkinson who this week outlined the huge calls on the budget over the coming years and urged a reweighing of the tax system to rely more on indirect taxes such as the GST.
Speaking in Brisbane, Stevens said it was becoming clear that programs were not fully funded by taxes over the medium term. “Our situation is not dire by the standards of other countries but neither are the issues trivial. A conversation needs to be had about this,” he said.
He described the Parkinson speech as “very important”.
Stevens said it was understandable that, with announcements of job losses, people focused on where future jobs would come from. But the problem was more likely to be not enough workers, rather than not enough jobs.
At present the number of new entrants to the workforce exceeded those retiring. Ten years from now, those numbers could be roughly equal, without a further rise in labour participation by older people.
“Demographic trends point in the direction of a smaller population working and a larger proportion needing support in their later years, even as public demands on the finances for the provision of social goods increase.
"That looks like a pretty uncomfortable combination of trends.”
He said the answer to reconciling them was growth. To some extent we would hopefully be able to lessen the problem through higher labour participation for longer. “But most of all we will need higher productivity of those working. That means making the system as flexible as possible and as encouraging as possible to innovation.”
For Australia, one potential source of productivity improvement lay in the fact that across a range of sectors US productivity was much higher than our own. There were possibly substantial “catch-up gains” to us by adopting better practices.
To those worried about projected job losses, Stevens pointed out that new jobs “will come from areas that we don’t see yet”.
“In the middle of 1991, at the low point of the last serious recession, people were very pessimistic about future employment prospects. The rate of unemployment was in double digits.
"But today, over 20 years later, there are nearly four million more jobs in the economy than there were then. The rate of unemployment, although it has gone up recently, is just slightly more than half what it was at its peak in the 1990s.
"It’s worth noting that none of those additional net jobs came from manufacturing,” Stevens said.