tag:theconversation.com,2011:/global/topics/australian-economy-5822/articlesAustralian economy – The Conversation2024-03-13T11:31:58Ztag:theconversation.com,2011:article/2256652024-03-13T11:31:58Z2024-03-13T11:31:58ZJim Chalmers warns budget revenue upgrades will be modest but flags expected surplus<p>Treasurer Jim Chalmers will say lower commodity prices and a softening labour market mean this year’s revenue upgrade will be modest, when he outlines on Thursday the government’s strategy for the May 14 budget. </p>
<p>At the same time, Chalmers will all but confirm the budget will be in the black, declaring, “We are still shooting for a second surplus”. </p>
<p>He also will indicated the government is likely to bank a smaller proportion than previously of what revenue upgrade there is. In earlier budgets it banked almost all of it. This time, he says, “we’ll bank what we can” of the upgrade.</p>
<p>Chalmers’ first two budgets were each helped by revenue upgrades of more than $100 billion, but there won’t be any such bonanza this year. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/grattan-on-friday-treasurer-jim-chalmers-prepares-a-new-growth-script-for-his-third-budget-225274">Grattan on Friday: Treasurer Jim Chalmers prepares a new 'growth' script for his third budget</a>
</strong>
</em>
</p>
<hr>
<p>“In fact we are even looking at much less than the $69 billion we booked in the latest mid-year budget update,” Chalmers will tell a Committee for Economic Development of Australia function. </p>
<p>On the commodities front, the iron ore price has been falling. “In the last week alone it has fallen by almost 10% due to concerns about the demand for steel in China,” Chalmers says in his address, part of which was released ahead of delivery. Earlier this week, it was trading at less than $94 a tonne.</p>
<p>“Its current price is around 20% cent lower than it was this far out from last year’s budget.”</p>
<p>Thermal coal has been on the general path Treasury assumed in the December mid-year budget update. But its present price is about a third lower than this time last year.</p>
<p>The strong labour market contributed a good part of the revenue upgrades of the previous budgets. </p>
<p>Chalmers says while the labour market remains resilient, it is softening. “So we won’t get the very substantial revenue upgrades we’ve seen from outperforming expectations here.</p>
<p>"At the end of last year, there were 14.2 million Australians in work – this is around 500,000 more than Treasury was forecasting at the time of the election. </p>
<p>"We welcome this, but we don’t expect to get such upside forecast surprises this time around.”</p>
<p>Chalmers says the three biggest drivers of the government’s strategy for this budget are “global uncertainty, persistent cost of living pressures, and slowing growth”.</p>
<p>“These pressures necessitate an approach to the third budget which is a little bit different, but not a lot different, to the first two,” he says.</p>
<p>“There will still be a premium on what’s responsible, affordable, meaningful and methodical.</p>
<p>"There will still be a primary focus, but not a sole focus, on inflation.”</p><img src="https://counter.theconversation.com/content/225665/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In a speech to Committee for Economic Development of Australia Treasurer Jim Chalmers will say lower commodity prices and a softening labour market mean this year’s revenue upgrade will be modest.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2187182023-12-17T19:17:49Z2023-12-17T19:17:49ZAn austere Christmas is on the cards – but don’t say recession<p>The rapid increase in interest rates over the past year and a half is causing many consumers to feel less than joyous this festive season. </p>
<p>Spending in the lead up to Christmas is likely to remain subdued, with consumers more budget conscious than in previous years. The muted outlook for consumption has got some economists and media outlets predicting a possible recession in 2024.</p>
<p>So, what is a recession and how likely is it Australia will actually see one next year?</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/were-in-a-per-capita-recession-as-chalmers-says-gdp-steady-in-the-face-of-pressure-212642">We're in a per capita recession as Chalmers says GDP 'steady in the face of pressure'</a>
</strong>
</em>
</p>
<hr>
<h2>What is a recession, anyway?</h2>
<p>The National Bureau of Economic Research (a private research organisation widely seen as the authority for determining recessions in the US) <a href="https://www.nber.org/research/business-cycle-dating/business-cycle-dating-procedure-frequently-asked-questions">defines</a> recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”</p>
<p>But it is not all just about weak consumption expenditure (people spending a bit less money than usual). In an open economy like Australia, a decline in consumption could just mean a decline in imports. In other words, weak consumption doesn’t necessarily mean we are producing less goods and services locally.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A couple of sad looking presents are placed around a very small Christmas tree." src="https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/564723/original/file-20231211-23-rwk6l5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">We may be in for an austere Christmas.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/vintage-house-decorated-small-christmas-tree-1935574153">Shutterstock</a></span>
</figcaption>
</figure>
<p>The Reserve Bank of Australia <a href="https://www.rba.gov.au/education/resources/explainers/recession.html">says</a> a recession is often defined as “a sustained period of weak or negative growth.”</p>
<p>But what do we mean by “sustained”? The media usually takes this to mean at least two consecutive quarters of negative growth in economic activity, typically measured by Gross Domestic Product (GDP). </p>
<p>However, the National Bureau of Economic Research does not use a two-quarter rule. And it looks at more than just domestic production. It examines a variety of different measures of economic activity – such as conditions in the labour market and industrial production – when making its decision about whether a recession has occurred or not.</p>
<p>Currently, there seems to an obsession with finding some measure that will indicate a recession. The latest candidate, popular among some observers and <a href="https://www.afr.com/policy/economy/the-big-squeeze-we-had-to-have-20230906-p5e2b8">media</a> <a href="https://theconversation.com/were-in-a-per-capita-recession-as-chalmers-says-gdp-steady-in-the-face-of-pressure-212642">outlets</a>, is a “per capita GDP recession”. </p>
<p>This means a fall in GDP per person. That’s an easier set of criteria to meet, so if you go by this definition, a recession is more likely.</p>
<p>Other economists and observers shy away from focusing on economic growth, saying the change in the unemployment rate is a better measure. These people believe a higher unemployment rate provides a better sign a recession has occurred.</p>
<p>The problem is, however, there can be other factors that weaken the link between the labour market and economic activity. Institutional changes to the labour market is one example. The decline in activity in 2008–2009, for instance, showed up as a decline in hours worked rather than an increase in unemployment, something that would not have occurred previously.</p>
<p>Even just using the “technical” definition (the two quarter rule) of a recession has its problems too. This is because of the issue of data revisions to measures of economic activity such as GDP.</p>
<p>The Australian Bureau of Statistics frequently revises historical values of GDP as new data become available. As a result, a negative quarterly growth outcome in one period can be revised away by the bureau in a subsequent period.</p>
<h2>Take any recession warnings with a grain of salt</h2>
<p>In the past, from about the 1960s to the 1980s, recessions were more frequent in Australia. But they are less likely now. This is partly because the frequency and volatility of shocks has declined since the mid-1980s. </p>
<p>A series of economic reforms that occurred in the 1980s and 1990s, such as floating the dollar and opening the economy up to greater competition, has also helped reduce the risk of recession. These changes have made Australia more robust to shocks.</p>
<p>We should be sceptical of anyone claiming a recession is just around the corner. Economists have a <a href="https://www.afr.com/markets/equity-markets/economists-are-terrible-at-predicting-recessions-20190812-p52g8r">terrible</a> <a href="https://www.bloomberg.com/news/articles/2019-03-28/economists-are-actually-terrible-at-forecasting-recessions">track</a> <a href="https://fivethirtyeight.com/features/economists-are-bad-at-predicting-recessions/">record</a> when it comes to predicting recessions.</p>
<p>To forecast a recession, we need to be able predict “turning points” – periods when economic activity goes from positive growth to negative growth or vice versa. This requires us to predict future shocks, like the outbreak of COVID, which is hard to do consistently.</p>
<p>There will always be some probability of a recession in Australia when a very large shock hits us. But our ability to successfully predict when one will occur is poor.</p>
<p>Any prediction Australia is on the cusp of recession should be taken with a grain of salt.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/im-an-expert-in-diplomatic-gift-giving-here-are-my-5-top-tips-for-the-best-christmas-present-exchange-218819">I’m an expert in diplomatic gift giving. Here are my 5 top tips for the best Christmas present exchange</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/218718/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Luke Hartigan receives funding from the Australian Research Council. He previously worked as an economist at the Reserve Bank of Australia.</span></em></p>We should be sceptical of anyone claiming a recession is just around the corner.Luke Hartigan, Lecturer in Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2185202023-12-03T19:17:00Z2023-12-03T19:17:00ZWe all know about JobKeeper, which helped Australians keep their jobs in a global crisis. So how about HomeKeeper?<figure><img src="https://images.theconversation.com/files/562302/original/file-20231129-17-znejzh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Bipartisan support for temporary extra government spending to preserve businesses and jobs through JobKeeper was one of the few positive outcomes from the COVID-19 pandemic.</p>
<p>Recognition that the long-term damage caused by short-term economic crises far exceeds the cost of temporary government spending to avoid it underpinned that consensus.</p>
<p>It’s worth considering now whether the same logic could be applied to create a “HomeKeeper” program, especially given Reserve Bank Governor <a href="https://www.theguardian.com/australia-news/2023/nov/22/rba-governor-michele-bullock-inflation-interest-rates-speech">Michele Bullock’s recent message</a> that interest rates could stay higher for longer than expected. </p>
<p>JobKeeper kept businesses open and preserved jobs during the short pandemic economic chasm. </p>
<p>Equally, HomeKeeper could help financially stressed mortgagors avoid losing their homes during the current interest rate crunch, and stop them joining already too-long rental queues – or worse, becoming homeless.</p>
<p>Government could apply vital lessons from JobKeeper’s design flaws too, making HomeKeeper a winner not just for vulnerable mortgagors but for the government’s balance sheet too. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562838/original/file-20231130-21-agbx3d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A recent survey found that over 30% over mortgage holders were experiencing stress with their repayments.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>How a ‘HomeKeeper’ scheme could work</h2>
<p>Rather than loans or handouts, the government could take a small equity stake in the property, equal to the value of the mortgage aid as a proportion of the property’s market value at that time. </p>
<p>The idea is to give those experiencing mortgage stress a little breathing space to recapitalise and get them through until interest rates ease without having to lose their homes. Up to $25,000 in assistance per family would be a reasonable ceiling.</p>
<p>It would work like this. Say, for example, someone has a $500,000 mortgage and their monthly repayment is $5,000. They could apply for HomeKeeper assistance for five months (reaching the $25,000 cap). In return, the government would get a 5% equity stake in their house. This could also be taken out as partial assistance, depending on the home owner’s needs.</p>
<p>Then, when the owner is able to pay back the government’s stake, or when the house is sold – whichever is sooner – the government is paid back the market value of the equity stake at that time.</p>
<p>These equity stakes could be held in a government “housing trust” until repaid on market terms. This would reflect growth in the property’s capital value and make it a sound investment for taxpayers. </p>
<p>By keeping the maximum size of the stake low, the help would matter most to families on low incomes in modest homes. Relative to the size of their mortgage, it would be significant assistance, and might mean the difference between keeping the family home or having to sell.</p>
<p>Mortgage payments could be dispatched directly from the government to the relevant bank with the mortgagor’s permission, to ensure the funds are applied on time and for the agreed purpose.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-happens-if-i-cant-pay-my-mortgage-and-what-are-my-options-188891">What happens if I can't pay my mortgage and what are my options?</a>
</strong>
</em>
</p>
<hr>
<h2>Why is a HomeKeeper program necessary?</h2>
<p>Australia has a crude system for identifying mortgage stress. </p>
<p>In research after the Global Financial Crisis (GFC), Western Sydney University’s <a href="https://www.westernsydney.edu.au/__data/assets/pdf_file/0019/140536/mortgage_distress_report-webversion_hires.pdf">Urban Research Centre found a range of partial</a>, sometimes indirect measures using “inconsistent categories”. </p>
<p>There is “often a failure to disaggregate between wealthy and poorer households”, it said. In other words, government tends to cite the overall picture instead of the specific situation of different types of mortgagors.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562307/original/file-20231129-25-boohnv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A HomeKeeper scheme could mean the difference for some people between keeping their home or having to sell.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>There is also often the casual assumption that because Australia has full employment, people won’t have trouble meeting their mortgage payments.</p>
<p>“Most households, because employment is so strong and unemployment is so low, they seem to be coping,” ANU economist <a href="https://www.afr.com/policy/economy/sydney-and-melbourne-lead-the-nation-in-mortgage-stress-rba-20231002-p5e923">Ben Phillips told the Australian Financial Review</a> last month.</p>
<p>Phillips conceded, though, that Australia doesn’t have meaningful, up-to-date financial stress indicators. “Various measures such as arrears, insolvency, savings and so on are partial measures or measures that are perhaps too late in the game,” he said. </p>
<p>So the picture is opaque, and lags. The early 1990s recession showed how <a href="https://www.abc.net.au/news/2020-07-08/1990s-recession-shows-there-is-no-quick-road-to-recovery/12431398">immense damage can already happen</a> by the time governments realise its dimensions.</p>
<p>This eventually had devastating consequences for the Labor government that oversaw it.</p>
<p>The then prime minister, Paul Keating, won the 1993 election immediately after the recession, up against the crusading neoliberal opposition leader, John Hewson, who had proposed a big new goods and services tax.</p>
<p>But Labor lost the following election in a landslide as voters, in Queensland premier Wayne Goss’s words, sat “on their verandahs with baseball bats” waiting to vote the Keating government out.</p>
<p>Banks classify loans as “delinquent” when mortgage payments are in arrears. NAB chief executive <a href="https://www.smh.com.au/business/banking-and-finance/nab-anz-see-few-signs-of-mortgage-stress-despite-rate-rises-20230712-p5dnm8.html">Ross McEwan told federal parliament</a>’s House Standing Committee on Economics in July that NAB was seeing “some stress in the system” and an “uptick in 30, 60 and 90-day delinquencies”, but said they remained below the ten-year average. </p>
<p>However, not all mortgagors are equal. </p>
<p>AMP senior economist <a href="https://www.amp.com.au/insights-hub/blog/investing/econosights-mortgage-stress-in-australia#">Diana Mousina said in March</a> that “the downside risks to the household sector are greater than the RBA, and most commentators, are estimating”. </p>
<p>Mousina drew attention to Australia’s record household debt as a proportion of household disposable income, upping the scope for financial stress considerably, and also to the particular vulnerability of one kind of borrower.</p>
<blockquote>
<p>In our view, the risk of mortgage stress lies with recent borrowers who have taken out loans between 2020 and mid-2022, which is around 62% of outstanding housing loans.</p>
<p>These households have not had time to build prepayment buffers […] have had a very fast repricing of mortgage rates, are more likely to have taken out larger loans and were probably not stress-tested for the current increase in interest rates.</p>
</blockquote>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/homeowners-often-feel-better-about-life-than-renters-but-not-always-whether-you-are-mortgaged-matters-215147">Homeowners often feel better about life than renters, but not always – whether you are mortgaged matters</a>
</strong>
</em>
</p>
<hr>
<h2>Helping those who don’t have access to the ‘Bank of Mum and Dad’</h2>
<p>Anecdotal evidence and logic suggest there’s another vulnerable group in addition to the one identified by Mousina: working-class mortgagors.</p>
<p>The “Bank of Mum and Dad” in middle- and upper-income families <a href="https://www.afr.com/companies/financial-services/the-bank-of-mum-and-dad-is-good-for-70-000-new-analysis-concludes-20231129-p5enpp">has for some time helped offspring buy their first home</a>.</p>
<p>A recent further development is the Bank of Mum and Dad providing assistance to help their offspring avoid mortgage delinquency in another intergenerational transfer of wealth among the well-off. </p>
<p>But there’s often no Bank of Mum and Dad for working-class mortgagors, who lack families with accumulated wealth to turn to for help.</p>
<p>HomeKeeper could be the government equivalent to the Bank of Mum and Dad for working-class families trying to hold onto their homes until interest rates ease.</p>
<h2>What are the likely objections?</h2>
<p>Three main objections are likely.</p>
<p>The first is that there’s no evidence there’s a problem whose solution requires something like HomeKeeper. However, current indicators are partial, inconsistent and lag, so over-reliance on them is risky – and there are signs there really is a problem.</p>
<p>The latest <a href="https://www.roymorgan.com/findings/mortgage-stress-risk-october-2023-2">Roy Morgan survey of stress</a> among owner-occupied mortagees showed near-record numbers of people “at stress”, numbering 1,514,000, or over 30% of mortgage holders. Nearly a million of them (967,000) are considered “extremely at risk”.</p>
<p>RedBridge pollster Kos Samaras has been regularly drawing attention to the extent of mortgage stress in social media posts all year.</p>
<p>By mid-2023, Samaras says, “over 1.1 million borrowers in just NSW and Victoria were experiencing negative cash flow” – that is, “income not enough to meet repayments and other expenses”.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1728875825003712944"}"></div></p>
<p>The second objection is that there have been assistance schemes in the past and they haven’t worked very well.</p>
<p>It’s true there have been some small fragmentary schemes, but never one on a JobKeeper-type scale, or with a JobKeeper-level public profile, or with the sound finance characteristics of using equity stakes rather than loans or handouts to fund it. </p>
<p>HomeKeeper would be different in kind, scale, profile and fiscal responsibility from any previous mortgagor-assistance program.</p>
<p>The third potential objection is that it would undermine the impact higher interest rates are designed to have – namely, to restrain household spending – and that interest rates would have to remain higher for longer to make up for that.</p>
<p>This misses an important point.</p>
<p>Radiation treatment for cancer used to involve obscenely large amounts of radiation over diffuse areas to achieve the desired goal, doing massive collateral damage in the process. </p>
<p>Over time, medical scientists refined their techniques and learned how to achieve the desired result using much less radiation confined to much more targeted areas. These days it’s a very precise science.</p>
<p>There’s no reason monetary policy shouldn’t undergo a similar evolution, becoming less blunt, more targeted and causing less collateral damage in the way it achieves the necessary goal of low inflation.</p>
<p>Working-class mortgagors are not the ones whose spending need to be restrained in the current inflationary environment. They shouldn’t be collateral damage in the RBA’s crusade to tame inflation.</p>
<p>A program like HomeKeeper could make the difference between them keeping or losing their homes, in a way that’s good for them and their families, and at the same time a sound investment for taxpayers.</p>
<hr>
<p><em>Correction: the definitions of mortgagee and mortgagor were inverted in an earlier version of this article.</em></p><img src="https://counter.theconversation.com/content/218520/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Wallace has received funding from the Australian Research Council. </span></em></p>Applying the logic of JobKeeper to create a HomeKeeper program could save a lot of working-class mortgagors from losing their homes.Chris Wallace, Professor, School of Politics Economics & Society, Faculty of Business Government & Law, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2123802023-08-30T01:31:39Z2023-08-30T01:31:39ZWe can talk about a higher rate of GST in Australia, but it will never happen<p>A group of crossbench parliamentarians have revived the idea of increasing the rate of the goods and services tax from 10% or removing exemptions on food, education and health purchases.</p>
<p>The group, which includes Allegra Spender and David Pocock, say increasing the GST rate would raise revenue to lessen government dependence on income tax as the population ages.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/slower-ageing-slower-growth-the-intergenerational-report-in-7-charts-211695">Slower ageing, slower growth: the Intergenerational Report in 7 charts</a>
</strong>
</em>
</p>
<hr>
<p>Raising more from the GST is among the perennial candidates. In 2015 <a href="https://www.theguardian.com/australia-news/2015/jul/15/joe-hockey-says-gst-rate-increase-and-base-broadening-must-be-considered">then treasurer Joe Hockey</a> floated the idea <a href="https://www.theguardian.com/australia-news/2015/jul/15/joe-hockey-calls-game-over-on-gst-increase-after-state-backlash">but quickly abandoned</a> it. </p>
<p>It can safely be predicted that this latest push from the crossbench will go the same way – nowhere. </p>
<h2>Premiers must agree to rate change</h2>
<p>The reason dates back to the debate over introducing the GST in the late 1990s, when opponents predicted the 10% rate would soon be raised, as had happened in New Zealand in the 1980s. </p>
<p>Then prime minister John Howard staved off this objection by designing the GST legislation so any increase in the rate required the unanimous support of all state and territory governments, as well as both houses of the federal parliament.</p>
<p>Getting such agreement is virtually impossible, as Hockey discovered. Even in the unlikely event of an agreement in principle, disputes over how the extra revenue should be shared would almost certainly derail any deal.</p>
<p>It might be possible in theory for the Commonwealth to renege on its deal by amending the GST legislation to remove or modify the states’ veto power. But the likelihood of getting such legislation through the Senate (notionally the “<a href="https://peo.gov.au/understand-our-parliament/your-questions-on-notice/questions/what-is-the-role-and-function-of-the-senate/">states’ house</a>”) is almost zero.</p>
<h2>Removing exemptions would increase cost of living</h2>
<p>There remains the option of removing exemptions. </p>
<p>Imposing the GST on health and education would be pointless. For the most part the government would be taxing itself. That leaves only the option of taxing food, strongly supported by free-market economists but rejected by nearly everyone else. </p>
<p>Taxing food would be a bad idea at any time, as it bears most heavily on low-income households. But in a context where the major parties have locked in a massively regressive cut to income tax for the well-off, it would be even worse. And, of course, it would directly increase the cost of living – the exact opposite of what our political leaders are promising.</p>
<p>In the absence of an increased GST, and with many other reforms ruled out following the 2019 election defeat of Labor under Bill Shorten, there seems little alternative but to rely more heavily on income tax. </p>
<p>It has been suggested, with some horror, that the top marginal rate might have to rise to 60%, still well below the rates that prevailed during the boom economy of the decades after 1945.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inheritance-taxes-resource-taxes-and-an-attack-on-negative-gearing-how-top-economists-would-raise-20-billion-per-year-202630">Inheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year</a>
</strong>
</em>
</p>
<hr>
<p>Increased reliance on income tax goes against the neoliberal belief that high marginal tax rates are a strong disincentive to work. </p>
<p>But the evidence for this belief is very weak. The bigger problem in our tax-welfare system is the high effective marginal tax rate paid by many families (often well above 60%) caused by the combined effect of income tax and the clawback of means-tested benefits.</p>
<p>Australia will have to choose between some challenging options to pay for the services we will collectively need in the future. But, for good or ill, an increase in GST is not among them.</p><img src="https://counter.theconversation.com/content/212380/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Quiggin was a prominent advocate for the exclusion of food from the GST when it was introduced</span></em></p>While Australia must make some hard choices to pay for services in the future, increasing the goods and services tax is just too hard.John Quiggin, Professor, School of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2060672023-05-23T11:00:24Z2023-05-23T11:00:24ZUp to 1 in 6 recent migrants get less than the minimum wage. Here’s why<figure><img src="https://images.theconversation.com/files/527472/original/file-20230522-15-pvc91u.jpg?ixlib=rb-1.1.0&rect=0%2C205%2C3195%2C1566&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>From working <a href="https://www.smh.com.au/business/workplace/rockpool-records-doctored-as-part-of-worst-ever-wage-theft-20191018-p531wa.html">20 to 30 hours</a> of unpaid overtime each week in one of Australia’s fanciest restaurants to picking fruit while being exposed to dangerous chemicals for <a href="https://www.smh.com.au/business/workplace/exploited-pacific-migrant-farm-workers-settle-landmark-case-20190801-p52cvi.html">less than $10 an hour</a>, the underpayment of migrant workers is rife. </p>
<p>The Grattan Institute’s new report, <a href="https://grattan.edu.au/report/short-changed-how-to-stop-the-exploitation-of-migrant-workers-in-australia/">Short-changed: How to stop the exploitation of migrant workers in Australia</a>, show a broad pattern. </p>
<p>We’ve used two nationally representative Australian Bureau of Statistics surveys of employees and employers – <a href="https://www.abs.gov.au/methodologies/characteristics-employment-australia-methodology/aug-2022">Characteristics of Employment</a> and <a href="https://www.abs.gov.au/methodologies/employee-earnings-and-hours-australia-methodology/may-2021">Employee Earnings and Hours</a> – to find out whether employees are paid below the national minimum hourly wage in Australia, currently <a href="https://www.fairwork.gov.au/tools-and-resources/fact-sheets/minimum-workplace-entitlements/minimum-wages">$21.38 an hour or $26.73 an hour for casuals</a>. </p>
<p>We estimate that recent migrants – those who arrived in Australia within the past five years – are twice as likely to be underpaid as migrants who have been in Australia for at least 10 years, and those born here. </p>
<h2>Underpayment is widespread</h2>
<p>In 2022, 5% to 16% of employed recent migrants were paid less than the national minimum wage. Between 1% and 8.5% of recent migrants were paid at least $3 less than the hourly minimum.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=362&fit=crop&dpr=1 600w, https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=362&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=362&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=455&fit=crop&dpr=1 754w, https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=455&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/527637/original/file-20230523-39027-wnj7p1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=455&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<hr>
<p>This compares with 3% to 9% of all employees in Australia being paid below the national minimum wage; with 0.5% to 4.5% paid at least $3 an hour less. </p>
<p>These numbers are likely to under-represent the extent of underpayment because our analysis only counts those being paid less than the national minimum wage.</p>
<p>It does not count cases where workers are underpaid against appropriate award rates, which typically pay more than the national minimum wage, penalty rates, or are not paid their superannuation.</p>
<h2>Factors contributing to exploitation</h2>
<p>Part of reason recent migrants are more likely to be underpaid is because they tend to work in industries where underpayment is more prevalent, such as hospitality and agriculture. </p>
<p>For example, temporary visa holders account for nearly 20% of workers in hospitality, the industry with the highest reported rate of underpayment. </p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=351&fit=crop&dpr=1 600w, https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=351&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=351&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=441&fit=crop&dpr=1 754w, https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=441&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/527640/original/file-20230523-14061-1eb99u.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=441&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<hr>
<p>Migrants also tend to be younger workers. Employees aged 20 to 29 are nearly six times more likely to be paid less than the national minimum wage than workers aged 30 to 39. </p>
<p>But even after accounting for age, industry and other demographic characteristics, migrants are still more likely to be underpaid. </p>
<p>Migrants who arrived in the past five years are 40% more likely to be underpaid than long-term residents with similar skills working in the same job with the same characteristics. Migrants who arrived five to nine years ago are 20% more likely to be underpaid. </p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/527639/original/file-20230523-17-58tsxd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<hr>
<p>Several things explain this. </p>
<p>First are visa rules, which make temporary visa holders more vulnerable to exploitation. For example, many international students put up with mistreatment for fear their visa may be cancelled for working more hours than permitted by their visa rules. <a href="https://grattan.edu.au/report/migrants-in-the-australian-workforce/">Two-thirds of recent migrants are on a temporary visa</a>. </p>
<p>Migrants have less bargaining power than local workers, partly because they have small social networks to help them find a job. They may not know what workplace rights they are entitled to and face discrimination in the labour market. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/whats-in-a-name-how-recruitment-discriminates-against-foreign-applicants-160695">What's in a name? How recruitment discriminates against 'foreign' applicants</a>
</strong>
</em>
</p>
<hr>
<p>Our analysis shows the likelihood of underpayment is also higher among those working less-skilled jobs with fewer qualifications. </p>
<h2>Without change, underpayment will rise again</h2>
<p>Rates of underpayment for migrant workers and locals alike have fallen since the pandemic began</p>
<p>In 2018, 8% to 22% of recent migrants were paid less than the minimum hourly wage (compared with 5% to 16% in 2022). </p>
<p>This probably reflects the decline in the number of temporary visa holders living in Australia, especially students and working holiday makers, and labour shortages boosting worker’s bargaining power. </p>
<p>But with borders open again and <a href="https://www.theaustralian.com.au/business/property/dont-blame-the-migrants-for-housing-crisis/news-story/6e5bc846ee02b4216961de785047bc91">temporary visa holders coming back in big numbers</a>, the rate of underpayment seems sure to rise again without action from government to stamp out exploitation. </p>
<p>The federal government needs to reform the visa rules that make migrants vulnerable, boost resources to enforce workplace and migration laws and make it easier for migrants to claim money owed. </p>
<p>Underpayment has been widespread for too long. Now is the time to put a stop to it. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-improve-the-migration-system-for-the-good-of-temporary-migrants-and-australia-199520">How to improve the migration system for the good of temporary migrants – and Australia</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/206067/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute's board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities, as disclosed on its website. We would also like to thank the Scanlon Foundation for its generous support of this project.</span></em></p><p class="fine-print"><em><span>Trent Wiltshire and Tyler Reysenbach do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Migrants in Australia less than five years are twice as likely to be underpaid as other employees.Brendan Coates, Program Director, Economic Policy, Grattan InstituteTrent Wiltshire, Deputy Director, Migration and Labour Markets, Grattan InstituteTyler Reysenbach, Research associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2053912023-05-10T20:01:46Z2023-05-10T20:01:46ZNo, the budget does not make further interest rate rises more likely<p>Inflation, as Prime Minister Anthony Albanese has said, is “<a href="https://www.theguardian.com/australia-news/live/2023/may/08/australia-politics-live-budget-2023-news-jim-chalmers-jobseeker-treasurer-cost-of-living-relief-albanese-parliament-dutton?page=with:block-645884438f0830193ba62e97">a tax on the poor</a>”. </p>
<p>The great budget challenge for him and Treasurer Jim Chalmers has been to deliver help to Australians struggling with cost-of-living pressures without adding to inflation.</p>
<p>So has the government achieved that aim? While it’s too soon to be certain, given the vagaries that have beset economic forecasting in recent years, in my view the measures announced do not add to the prospect of the Reserve Bank of Australia raising interest rates further. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-2023-budgeting-for-difficult-times-is-hard-just-ask-chalmers-205209">Budget 2023: budgeting for difficult times is hard – just ask Chalmers</a>
</strong>
</em>
</p>
<hr>
<p>The RBA’s latest forecasts, <a href="https://www.rba.gov.au/publications/smp/2023/may/">published last week</a> after it raised rates for the 11th time in 12 months, now assume no further rate rises will be needed for inflation to fall back to the central bank’s 2-3% target range by mid-2025. (RBA Governor Lowe has said taking this length of time is better than forcing inflation down quicker at the expense of job losses.)</p>
<p>This suggests the RBA will only raise interest rates in June or July if there’s new evidence that inflation is staying higher than expected.</p>
<hr>
<p><iframe id="vu9by" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/vu9by/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<h2>How the budget may change the RBA’s view</h2>
<p>The only price rises resulting from the budget are higher prices for smokers, with the tobacco excise to be increased by 5% a year over three years. </p>
<p>To avoid adding to inflation, the government has focused on budget measures that directly reduce costs of essential goods and services for those on lower incomes, notably household energy bills (some households will <a href="https://www.energy.gov.au/government-priorities/energy-programs/energy-bill-relief-fund">save $500 a year</a>) and medical expenses (increasing bulk-billing incentives and reducing the cost of some medicines). </p>
<p>Treasury <a href="https://budget.gov.au/content/bp1/download/bp1_bs-2.pdf">estimates</a> these measures will directly reduce inflation by 0.75 of a percentage point in 2023–24.</p>
<p>What matters most is how they affect the Consumer Price Index’s “<a href="https://www.rba.gov.au/education/resources/explainers/inflation-and-its-measurement.html">trimmed mean</a>” measure of underlying inflation. This excludes the 15% of prices that climb the most and the 15% of prices that climb the least (or fall). The RBA often pays more attention to the trimmed mean than the headline CPI figure because it is less influenced by temporary factors. </p>
<hr>
<p><iframe id="xaAsb" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/xaAsb/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Energy and medical prices may end up among the prices that fall and thus get excluded from the measure. So the trimmed mean measure may be less reduced than the headline number. </p>
<p>On a more positive note, the high profile of these price reductions may contribute more to moderating inflationary expectations. Because inflation, as Lowe has indicated with all his warnings about stagflation, is <a href="https://theconversation.com/1970s-style-stagflation-now-playing-on-central-bankers-minds-185868">a lot about psychology</a>. </p>
<h2>What about those payments?</h2>
<p>Households receiving higher support payments such as unemployment benefits, single parenting payment, youth allowance and rental assistance will have more money to spend.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-2023-at-a-glance-major-measures-cuts-and-spends-205211">Budget 2023 at a glance: major measures, cuts and spends</a>
</strong>
</em>
</p>
<hr>
<p>But not much, and the measures are tightly targeted to those most in need. This contrasts with the cost-of-living relief measures of the previous government, whose temporary cuts to petrol excise and so-called “<a href="https://theconversation.com/the-low-and-middle-income-tax-offset-has-been-extended-yet-again-it-delivers-help-neither-when-nor-where-its-needed-160772">low and medium tax offset</a>” provided greater benefits to the affluent.</p>
<p>Treasury expects these measures to only add modestly to aggregate demand. Total household spending is forecast to grow by 1.5% in 2023–24. This will not be a significant source of inflationary pressure. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-spends-big-on-support-but-wont-make-much-difference-to-poverty-205219">Budget spends big on support but won't make much difference to poverty</a>
</strong>
</em>
</p>
<hr>
<p>The budget papers’ forecast for inflation by June 2024 is 3.25%, slightly less than the RBA’s forecast of 3.5%. The forecast by June 2025 is 2.75%, compared to the RBA’s 3%.</p>
<p>It remains to be seen if the RBA’s next set of forecasts will be closer to those of Treasury. These will be published in August, though the the bank may be guided by them before then. </p>
<p>If they are, then further rate rises will be less likely.</p><img src="https://counter.theconversation.com/content/205391/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins was formerly a senior economist at both the Reserve Bank and Treasury.</span></em></p>The RBA’s latest forecasts assume no further rate rises will be needed. There’s nothing in the budget that should change that.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2007002023-03-06T19:03:32Z2023-03-06T19:03:32ZUnderlying Australia’s inflation problem is a historic shift of income from workers to corporate profits<figure><img src="https://images.theconversation.com/files/513559/original/file-20230306-20-e5xeu0.jpg?ixlib=rb-1.1.0&rect=0%2C473%2C8328%2C4201&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The three years since the onset of the pandemic have witnessed a dramatic redistribution of national income, away from labour compensation and towards business profits. </p>
<p>No one should be surprised. Supply-chain disruptions, pent-up consumer demand and inflation have provided businesses with a golden opportunity to increase their margins. Many have taken it.</p>
<p>The latest <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release#income">GDP data</a> from the Australian Bureau of Statistics confirms that, in the three years since December 2019, corporate gross operating profits have risen 43.6% – more than twice the growth in wages.</p>
<p>As a result, the share of GDP going to corporate profits has increased by 3.6 percentage points. Conversely, labour’s share shrank by 2.3 percentage points, despite low unemployment rates and rising nominal wages. Even hard-pressed small businesses, personified by the friendly neighbourhood café owner, did better. </p>
<hr>
<p><iframe id="Xjtnr" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Xjtnr/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>The 29% share of national income now going to corporate profits is the highest in Australian history – higher even than 2020 when profits were temporarily boosted by JobKeeper payments and other business subsidies. Meanwhile, workers’ share of GDP reached its lowest point ever (just 45%).</p>
<p>The decline has implications for inequality and social cohesion. It is translating into a notable decline in workers’ real living standards, and exacerbating the rise in inflation.</p>
<h2>No, it’s not all about mining</h2>
<p>Some claim the rise in profits <a href="https://www.afr.com/work-and-careers/workplace/business-says-unions-profit-focus-creates-us-v-them-narrative-20220722-p5b3sx">is solely due</a> to supercharged energy and mining prices, and hence does not indicate any general shift in distribution patterns. </p>
<p>The Business Council of Australia’s head, Jennifer Westacott, has <a href="https://www.afr.com/work-and-careers/workplace/business-says-unions-profit-focus-creates-us-v-them-narrative-20220722-p5b3sx">even claimed that</a> the profit share of non-mining businesses has fallen. </p>
<p>Her calculation is flawed: it excludes mining from one part of the equation (profits) but not the other part (nominal GDP). In 2022 mining’s contribution to GDP <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/dec-2022/5206045_Industry_GVA_Current_Price.xlsx">exceeded 15%</a>. </p>
<p>An apples-to-apples comparison, measuring non-mining profits to non-mining GDP, shows profits have grown relative to GDP in most of the economy, not just in mining. While mining profits surged 89% in the three years to December 2022, non-mining profits increased 29% – faster than non-mining GDP, and much faster than wages.</p>
<hr>
<p><iframe id="irDnt" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/irDnt/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>In sum, the redistribution of national income is occurring across the economy, with a smaller share for workers and a larger share for the owners of the businesses they work for. </p>
<h2>Real wages have plummeted</h2>
<p>This decline in labour’s share of GDP just since the pandemic represents foregone earnings of close to A$5,000 a year per employee, on average. </p>
<p>This extends a longer-term ongoing erosion of labour’s share of GDP that has been occurring since the 1980s. It has occurred despite a modest uptick in nominal wage growth, and statutory increases in superannuation contributions by employers (which are included in the statistics above). </p>
<hr>
<p><iframe id="G5bb5" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/G5bb5/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Post-COVID inflation has caused a steep fall in the absolute purchasing power of wages. </p>
<p>This is confirmed by the ABS <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release#data-downloads">Wage Price Index</a> (WPI), which reports changes in average wage levels. It’s a good measure of pure wage inflation, analogous to the Consumer Price Index (CPI) for consumer goods and services. </p>
<p>The latest WPI data shows nominal wages rose 3.3% in the 12 months to December 2022. But with the CPI rising 7.8% in the same period – the biggest gap between the WPI and CPI since the Australian Bureau of Statistics began gathering this data in 1997 – wage growth has now lagged consumer prices for seven consecutive quarters. This is also a record.</p>
<p>As a result, real wages have fallen by 5% in the three years since December 2019.</p>
<hr>
<p><iframe id="quSRg" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/quSRg/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>(The temporary spike in real wages in mid-2020 was an unusual consequence of lockdowns, which most affected low-paid jobs in sectors like hospitality and retail. The loss of these jobs pumped up average wages for the rest, but that was reversed when those sectors re-opened after the lockdowns.) </p>
<p>The real purchasing power of wages is now back to the same level as 2010. More than a decade’s worth of gradual improvement for Australian workers has been wiped out. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-certainty-of-ever-growing-living-standards-we-grew-up-with-under-queen-elizabeth-is-at-an-end-190425">The certainty of ever-growing living standards we grew up with under Queen Elizabeth is at an end</a>
</strong>
</em>
</p>
<hr>
<p>Worse, more losses are to come through 2023, and likely much of 2024, according to <a href="https://www.rba.gov.au/publications/smp/2023/feb/pdf/statement-on-monetary-policy-2023-02.pdf">Reserve Bank of Australia forecasts</a>.</p>
<h2>Why is the RBA focused on wages?</h2>
<p>Claims that businesses are mere intermediaries in inflation – simply passing on higher costs to consumers – are disproved by the growth in corporate profits.</p>
<p>This is most starkly visible in mining and energy prices, one of the largest sources of recent CPI inflation. But even in non-mining sectors prices have increased faster than required simply to offset higher costs. </p>
<p>In <a href="https://futurework.org.au/report/profit-price-spiral-the-truth-behind-australias-inflation/">other research</a>, I have estimated the rise in corporate profits since December 2019 (both mining and non-mining) accounts for 69% of the jump in inflation above the RBA’s 2.5% target.</p>
<p>Workers are already paying for higher inflation through falling purchasing power. They will pay again through job and income losses from any economic slowdown (potentially a recession) caused by the RBA’s response to that inflation. </p>
<p>Yet the RBA remains narrowly obsessed with supposedly overheated labour markets and rising wages. Its February <a href="https://www.rba.gov.au/publications/smp/2023/feb/pdf/statement-on-monetary-policy-2023-02.pdf">Statement on Monetary Policy</a> mentions wages more than 70 times. Profits are mentioned just once.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/profits-push-up-prices-too-so-why-is-the-rba-governor-only-talking-about-wages-185688">Profits push up prices too, so why is the RBA governor only talking about wages?</a>
</strong>
</em>
</p>
<hr>
<h2>Acknowledging reality</h2>
<p>Concern over the redistribution of national income from labour to capital is not class envy. For working-class households it has resulted in an increasing struggle to make ends meet.</p>
<p>Addressing and ameliorating the effects of this historic redistribution will require a comprehensive and complex <a href="https://www.actu.org.au/media/1450094/actu-job-summit-papers-macroeconomics-10-august-2022.pdf">range of policy responses</a>. Crucially it requires wages growing faster than prices, both to make up for past real wage losses, and to reflect ongoing productivity growth.</p>
<p>Possible measures to short-circuit this profit-price inflation, and support a recovery in real wages, include <a href="https://www.axios.com/2022/09/06/no-longer-a-1970s-relic-price-controls-are-back">price controls</a> in energy, housing and other strategic sectors; redistributing excess profits in sectors such as mining through <a href="https://australiainstitute.org.au/post/gas-giants-reap-40-billion-in-windfall-war-profits-report/">tax</a> and transfer mechanisms; and <a href="https://futurework.org.au/report/collective-bargaining-and-wage-growth-in-australia/">stronger collective bargaining</a> provisions.</p>
<p>Such responses are controversial, and will spark debate. They will need careful research and design to ensure they do more good than harm. </p>
<p>But the first step is to acknowledge that this reapportionment of the economic pie, from labour to capital, is indeed happening – and is a problem.</p><img src="https://counter.theconversation.com/content/200700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>Since the pandemic Australian workers’ share of national income and purchasing power has fallen at an unprecedented rate. New policies are needed.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1995192023-02-17T05:43:49Z2023-02-17T05:43:49ZThe Lowe road – the RBA treads a ‘narrow path’<p>It’s a tough time for central bankers the world over, but especially for Reserve Bank of Australia governor Philip Lowe. </p>
<p>Having forecast during the COVID recession that Australia’s central bank wouldn’t raise interest rates before 2024, he’s taking a lot of stick for <a href="https://www.rba.gov.au/media-releases/2023/mr-23-04.html">nine consecutive rate rises</a> since May 2022. This has taken the <a href="https://www.rba.gov.au/statistics/cash-rate/">cash rate</a> from an historic low 0.1% up to 3.35%, and more increases are flagged before the end of 2023.</p>
<p>Lowe apologised for this bum steer in November. But he was still expected to face a grilling from politicians during his appearance this week before two parliamentary committees: the Senate Economics Legislation Committee on Wednesday and the House of Representatives Standing Committee on Economics on Friday. </p>
<p>They turned out to be light grillings. Apart from questions from Greens senator Nick McKim about whether he would resign, both sessions were relatively civil, and Lowe was unrepentant about the prospect of further interest rate increases. He even said the bank may not be going hard enough.</p>
<p>While acknowledging interest rates were a “blunt instrument” to control inflation, he said people had forgotten how corrosive high inflation could be. </p>
<h2>Return of the inflation stick</h2>
<p>It is about 30 years since the Reserve Bank “<a href="https://pmtranscripts.pmc.gov.au/release/transcript-8937">snapped the inflation stick</a>” by adopting a policy intended to keep inflation, on average, within a 2-3% target range. Since then, inflation has indeed averaged 2.5%.</p>
<p>But inflation is now 7.8%, its highest level since 1990. Lowe said this was “way too high” and that the bank was determined to get the rate back below 3%. </p>
<hr>
<p><iframe id="i3Jfj" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/i3Jfj/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>For populist politicians, this is an easy issue to whip. A household with a $500,000 30-year variable-rate loan is now paying about $900 more a month in interest payments than a year ago. About <a href="https://www.rba.gov.au/publications/smp/2023/feb/pdf/03-domestic-financial-conditions.pdf">half</a> of the borrowers with fixed-rate loans will face increases in repayments over the next year. (Generally, interest rates are fixed only for two to three years, then move to the prevailing variable rate.) </p>
<p>Lowe acknowledged the risks of increasing interest rates too much. This could lead to companies and consumers cutting back on borrowing and spending so much that the economy is pushed into recession.</p>
<p>But he warned not doing enough was just as risky. Allowing inflation to persist would particularly <a href="https://www.bis.org/publ/arpdf/ar2021e2.pdf">hurt the poor</a>. The rich own houses and shares whose value generally keeps pace with inflation. Those with only modest savings have their purchasing power eroded by inflation. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/higher-interest-rates-falling-home-prices-and-real-wages-but-no-recession-top-economists-forecasts-for-2023-198975">Higher interest rates, falling home prices and real wages, but no recession: top economists' forecasts for 2023</a>
</strong>
</em>
</p>
<hr>
<p>There are no easy options for the RBA. The central bank is trying to find a <a href="https://www.rba.gov.au/speeches/2023/pdf/sp-gov-2023-02-17.pdf">narrow path</a> between curbing inflation and stalling economic activity. Like Goldilocks, Lowe is seeking a state that’s neither too hot nor too cold.</p>
<h2>The economics committees</h2>
<p>The House and Senate economics committees are where much of the detailed examination of proposed legislation and issues occurs. (The Senate has two economics committees – one for “<a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Legislation_Committee_Membership">legislation</a>” and one for “<a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/References_Committee_Membership">references</a>”.)</p>
<p>Understanding economics is not a prerequisite for membership of these committees, but they currently include an unusually large number of people with such an understanding.</p>
<p>The Senate Economics Committee is chaired by Victorian Labor senator <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=252157">Jess Walsh</a>, who has a PhD and has worked for progressive economic think tanks in the United States. </p>
<p>Her deputy, and chair of the Senate Economics References Committee, is NSW Liberal senator <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=256063">Andrew Bragg</a>, a qualified accountant who has worked as an executive director of the Business Council of Australia.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/rbas-latest-forecasts-are-grim-here-are-5-reasons-why-199509">RBA's latest forecasts are grim. Here are 5 reasons why</a>
</strong>
</em>
</p>
<hr>
<p>The House committee is chaired by Victorian Labor MP Daniel Mulino, who has a PhD in economics from Yale. Committee members Andrew Charlton, Tania Lawrence, Alicia Payne, Allegra Spender and Keith Wolahan also have economics qualifications. </p>
<p>Despite this, I think Lowe has faced greater grilling in the past. He performed well in both sessions this week. For example, when pressed on why he had talked about the impact of high interest rates on households with mortgages, but not on renters, Lowe responded simply by noting that rents were being driven by demand outstripping supply, not higher interest rates. </p>
<h2>Will Lowe go?</h2>
<p>Lowe’s seven-year term ends in September. The government is noncommittal about his future, stating cabinet will decide in the middle of the year if it will extend his term. </p>
<p>That may depend on the outcome of the independent review of the RBA that
federal treasurer Jim Chalmers <a href="https://rbareview.gov.au/">established in June 2022</a>. The review is examining the RBA’s approach to monetary policy and the governance, culture and communication strategies. Chalmers is due to receive that report at the end of March.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-rba-has-got-a-lot-right-but-theres-still-a-case-for-an-inquiry-184314">The RBA has got a lot right, but there's still a case for an inquiry</a>
</strong>
</em>
</p>
<hr>
<p>Lowe acknowledged the RBA’s decisions are unpopular with many. But he also made the the point the bank’s decisions are taken by a board <a href="https://www.theguardian.com/commentisfree/2023/feb/16/amid-fears-of-a-recession-the-rba-deserves-scrutiny-but-personal-attacks-on-philip-lowe-miss-the-point">with nine members</a>, advised by a large staff, not just by him. </p>
<p>Time will tell if the federal government agrees.</p><img src="https://counter.theconversation.com/content/199519/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins is a former advisor to the House Economics Committee and served as secretary of the Senate Economics Committee. He has also worked for the Reserve Bank.</span></em></p>Reserve Bank of Australia governor Philip Lowe is unrepentant about the prospect of further interest-rate rises. In fact, he says there’s a risk the bank is not doing enough.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1995092023-02-10T04:12:58Z2023-02-10T04:12:58ZRBA’s latest forecasts are grim. Here are 5 reasons why<figure><img src="https://images.theconversation.com/files/509365/original/file-20230210-22-jhsr36.jpg?ixlib=rb-1.1.0&rect=0%2C494%2C4281%2C2233&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>After lifting interest rates for a record nine times in a row, and flagging more raises still to come, the Reserve Bank of Australia’s latest set of forecasts make for grim reading.</p>
<p>The forecasts are part of the central bank’s quarterly <a href="https://www.rba.gov.au/publications/smp/">Statement on Monetary Policy</a>, its main communication (aside from interest rates) on how it sees the economy faring over coming few years.</p>
<p>The bad news is the bank tips economic growth to slow, inflation to remain high, spending to stagnate, unemployment to increase, and real wages to fall further. </p>
<p>The good news is that it could be wrong.</p>
<h2>1. Growth is expected to slow</h2>
<p>The central bank expects Australia’s economy to slow this year due to rising interest rates, higher cost of living, and declining house prices. </p>
<p>It tips GDP growth for 2022 will be 2.75% (the Australian Bureau of Statistics won’t publish this data until March), and 1.5% over 2023 and 2024. </p>
<p>This compares to the RBA’s expectation <a href="https://www.rba.gov.au/publications/smp/2022/nov/pdf/statement-on-monetary-policy-2022-11.pdf">three months ago</a> of 3% growth in 2022, but is the same as the previous prediction for this year and the next.</p>
<hr>
<p><strong>RBA GDP growth forecasts</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509397/original/file-20230210-22-ofjii4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Confidence intervals reflect RBA forecasting errors since 1993. Year-end forecasts.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/smp/2023/feb/">RBA</a></span>
</figcaption>
</figure>
<hr>
<h2>2. Inflation will remain high</h2>
<p>The bank says inflation, which hit 7.8% in 2022, is likely to have peaked and will stay high for several months, but should decline to 4.5% by the end of 2023. </p>
<p>By mid-2025 the bank expects inflation to have fallen to back to 3% – the top end of its inflation target range of 2-3%. </p>
<p>However, the pace of this fall depends on wages and prices. The bank acknowledges inflation could fall more quickly or more slowly.</p>
<hr>
<p><strong>RBA headline inflation forecasts</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=288&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=288&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=288&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=362&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=362&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509399/original/file-20230210-22-9ef4vx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=362&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Confidence intervals reflect RBA forecasting errors since 1993. Year-end forecasts.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/smp/2023/feb/">RBA</a></span>
</figcaption>
</figure>
<hr>
<p>Australian consumer price inflation has been high due to factors including global supply-chain disruptions caused by the pandemic, Russia’s invasion of Ukraine, strong domestic demand, a tight labour market, and capacity constraints. </p>
<p>The bank expects rising energy prices to continue to drive inflation but expects this to be offset by the government’s Energy Price Relief Plan, which caps gas and coal prices, will subsidise household and business bills. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/will-price-caps-on-gas-bring-power-prices-down-an-expert-isnt-so-sure-196277">Will price caps on gas bring power prices down? An expert isn't so sure</a>
</strong>
</em>
</p>
<hr>
<p>Price increases for goods such as food and furniture are expected to moderate. But the cost of services will continue to rise, due to wage growth. </p>
<p>This is the main reason the RBA has flagged more interest rate hikes this year. It is determined to get inflation back to its target band, and will keep increasing borrowing rates until it is sure this goal will be achieved.</p>
<h2>3. Consumer spending will stagnate</h2>
<p>The bank’s statement says higher consumer prices, higher interest payments and lower household net wealth are expected to curb consumer spending in 2023. </p>
<p>But it says spending should improve once interest rate rises stop, household wealth recovers and disposable incomes are boosted by tax cuts. </p>
<p>The household saving ratio (which doubled during the pandemic) is expected to fall below the pre-pandemic norm of 5% before clibing back to pre-pandemic levels in 2024.</p>
<h2>4. Unemployment will climb</h2>
<p>The bank expects the unemployment rate to remain at about 3.5% until mid-2023, and then to climb to 4.5% as demand for labour moderates.</p>
<p>4.5% remains well below where it has been for most of the past half century.</p>
<hr>
<p><strong>RBA unemployment rate forecasts</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=291&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=291&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=291&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=365&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=365&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509402/original/file-20230210-20-jj6yjt.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=365&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Confidence intervals reflect RBA forecasting errors since 1993.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/smp/2023/feb/">RBA</a></span>
</figcaption>
</figure>
<hr>
<p>Jobs growth is forecast to slow from 4.8% in 2022 to about 1% by mid-2024. </p>
<p>Despite this, the participation rate in the labour force is not expected to fall, due to structural trends such as higher female and older worker participation. </p>
<h2>5. Real wages will fall</h2>
<p>The RBA’s forecast for wages growth is now higher than three months ago, due to a tight labour market, higher staff turnover, higher inflation outcomes and Fair Work Commission wage decisions. </p>
<p>It tips the Wage Price Index, which <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">hasn’t been above 4%</a> in a decade, to hit 4.25%. </p>
<p>Given the inflation rate, however, this won’t be enough wages growth to stop real wages from continuing to fall. </p>
<p>The wage price index is tipped to fall back to 3.75% in mid-2025 as the demand for labour subsides and unemployment climbs.</p>
<h2>Uncertainty remains high</h2>
<p>These forecasts make for grim reading. But they could all be quite wrong. As the saying goes, it’s tough to make predictions, especially about the future. </p>
<p>Huge uncertainties hang over the global economy, including the war in Ukraine, the emergence of new COVID variants, and the unique challenges of recovering from the pandemic. </p>
<p>That means all these forecasts could be – and likely will be – wrong in one dimension or another. </p>
<p>Even the governor’s <a href="https://theconversation.com/rba-warns-of-at-least-2-more-interest-rate-rises-in-coming-months-as-the-economic-outlook-worsens-199272">very clear message</a> that there will be more interest rate rises this year could change if the prevailing circumstances do too. Time will tell.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/higher-interest-rates-falling-home-prices-and-real-wages-but-no-recession-top-economists-forecasts-for-2023-198975">Higher interest rates, falling home prices and real wages, but no recession: top economists' forecasts for 2023</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/199509/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isaac Gross does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Reserve Bank of Australia tips economic growth to slow, inflation to remain high, spending to stagnate, unemployment to increase and real wages to fall further.Isaac Gross, Lecturer in Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1985042023-01-25T05:39:11Z2023-01-25T05:39:11ZWith inflation still rising, the RBA will almost certainly lift interest rates in February<p>Interest rates are almost certain to rise again in February, after the latest Consumer Price Index figures showing inflation hit 7.8% in 2022 – its highest rate in 33 years.</p>
<p>The data from the Australian Bureau of Statistics shows a 1.9% increase in the CPI in the December quarter. Combined with the strong increases in the first nine months of the year, inflation in 2022 was at the highest rate since March 1990.</p>
<p>This reflects a post-pandemic spend-a-thon. Domestic holiday travel and accommodation rose 13.3% over 2022, while international holiday travel and accommodation rose 7.6%. Rents increased by 4%. Power bills increased by 8.6%.</p>
<hr>
<p><iframe id="XDV1m" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/XDV1m/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>While these price rises were particularly large, the rise in inflation has been quite broadly based. The ABS survey shows the price of 87% of all goods and services increased by more than 2.5% – which is where the central bank generally likes to keep price increases.</p>
<p>The annual change is a touch lower than the Reserve Bank of Australia’s upper forecast of 8% issued in November last year. But it still remains well above the central bank’s target band of 2-3%.</p>
<p>Measures of underlying inflation, which strip out the impact of unusually volatile sectors, also came in at record highs. The trimmed-mean inflation rate (which excludes the 15% of fastest growing and the 15% growing slowest growing prices) was 6.9%, higher than forecast in November. The weighted median price, another measure of underlying inflation, rose by 5.8%. </p>
<p>All of these statistics paint a clear picture: prices are increasing apace in every part of the Australian economy.</p>
<h2>What this means for the RBA</h2>
<p>This all but guarantees the RBA board will increase interest rates by 0.25 percentage points at its next meeting, on February 7, and likely several more times in 2023. </p>
<p>To fulfil its mandate to keep inflation between 2% and 3%, the bank must further reduce aggregate spending in the economy – principally through lifting the interest rates. </p>
<p>The rationale is that higher rates will encourage households to spend less and save more. A higher cash rate will also make the dollar more valuable as it encourages people to hold Australian dollars. This will help make imports cheaper than they otherwise would be.</p>
<p>It will also, of course, feed into higher loan repayments for households with a mortgage. This will take more spending power out of economy and suppress house prices as the amount of money borrowers can afford falls. Higher mortgage repayments will also cut into household spending, which should help to bring down inflation over 2023.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/a-brief-history-of-the-mortgage-from-its-roots-in-ancient-rome-to-the-english-dead-pledge-and-its-rebirth-in-america-193005">A brief history of the mortgage, from its roots in ancient Rome to the English 'dead pledge' and its rebirth in America</a>
</strong>
</em>
</p>
<hr>
<h2>More than 25 basis points?</h2>
<p>There remains an outside chance the RBA will go harder than a 25-basis-point increase and return to the 50-basis-point increases delivered in June, July, August and September of 2022. </p>
<p>This is unlikely but cannot be ruled out, given the rate of inflation and the current strong state of the labour market. The official unemployment rate of 3.5% is a record low and a sign of the economy’s strength – one able to handle higher interest rates without plunging into recession.</p>
<p>While economists still expect inflation to have peaked, the pace at which it will then fall is still an open question. </p>
<p>If rents continue to rise or wage growth picks up, it’s possible CPI will continue to rise. This would almost certainly result in the RBA lifting rates. </p>
<p>The more optimistic scenario involves inflation falling more quickly, as is already happening in the US. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/global-recession-is-increasingly-likely-heres-how-australia-could-escape-191336">Global recession is increasingly likely. Here's how Australia could escape</a>
</strong>
</em>
</p>
<hr>
<p>If the rate of inflation starts to fall more quickly towards the 2-3% target band then the RBA will not need to increase interest rates by quite as much. </p>
<p>Fortunately inflation expectations remain largely in check. This means Australia should avoid a costly recession as the RBA lowers the inflation rate back towards the target band.</p>
<p>One clear takeaway from 2022 is that there remains a large degree of uncertainty in the outlook of the economy. That means policy makers will have to remain flexible when setting macroeconomic policy, ready to hike or cut interest rates as Australia’s economy changes.</p><img src="https://counter.theconversation.com/content/198504/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isaac Gross does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Interest rates are almost certain to rise again in February, after the latest Consumer Price Index figures showing inflation hitting a record high of 7.8% in 2022.Isaac Gross, Lecturer in Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1956512022-12-01T19:03:24Z2022-12-01T19:03:24ZHalf a century on, it’s time to reassess the Whitlam government’s economic legacy<figure><img src="https://images.theconversation.com/files/498207/original/file-20221130-12-t67ynz.jpeg?ixlib=rb-1.1.0&rect=0%2C121%2C898%2C454&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Third_Whitlam_Ministry.jpg">National Archives of Australia/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>After leading the Australian Labor Party to its first federal election victory in 23 years, Gough Whitlam wasted no time.</p>
<p>The Tuesday after his election on December 2 1972, he formed an interim two-man cabinet – a duumvirate – with his deputy Lance Barnard, and set about changing the nation.</p>
<p>Modestly, he took only 13 portfolios, while Barnard got 14. The pair governed the country for two weeks until the results of the election were formally declared and a full ministry sworn in. None of this, however, <a href="https://theconversation.com/view-from-the-hill-scott-morrison-makes-parliamentary-history-for-the-worst-of-reasons-195648">was secret</a>.</p>
<p>The Whitlam government’s enthusiasm for reform has left a lasting legacy. It introduced universal health insurance. It made tertiary education free. It lifted pensions. It abolished conscription. It established diplomatic relations with China. It began the process to recognise Indigenous land rights.</p>
<p>But it is also generally remembered for poor economic management. Many would regard this perception as the main reason Labor, having won a second election in May 1974, was trounced in December 1975.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australian-politics-explainer-gough-whitlams-dismissal-as-prime-minister-74148">Australian politics explainer: Gough Whitlam's dismissal as prime minister</a>
</strong>
</em>
</p>
<hr>
<p>Whitlam <a href="https://treasury.gov.au/publication/economic-roundup-issue-2-2013-2/economic-roundup-issue-2-2013/frank-crean-a-long-wait-for-a-turbulent-tenure">himself admitted</a> his “preoccupations and predilections lay beyond the narrower field of economic theory”. </p>
<p>Certainly the Whitlam government’s economic performance was far from perfect. But it deserves a better reputation than it has. Fifty years on, we can now see how much the circumstances of the time coloured perceptions.</p>
<h2>Economic growth</h2>
<p>Campaigning in 1972, Whitlam scoffed at the 3% annual economic growth achieved under the incumbent McMahon government. He aspired to <a href="https://electionspeeches.moadoph.gov.au/speeches/1972-gough-whitlam">achieving 6-7%</a>. But he ended up actually achieving less than 3%.</p>
<hr>
<p><iframe id="n69r8" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/n69r8/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>We can now see this wasn’t the failure it seemed at the time. The growth rates of the 1950s and 1960s were atypical, and set unrealistic expectations. Since federation, in fact, average annual economic growth has been 3%.</p>
<h2>A time of crisis</h2>
<p>Like two other Labor governments – that of James Scullin in 1929 and Kevin Rudd in 2007 – Whitlam had the bad luck of taking office just before a large global economic downturn. </p>
<p>This was precipitated by the 1973 oil crisis, when Saudi Arabia and other OPEC nations refused to sell oil to the United States and nations that supported Israel in the Yom Kippur war.</p>
<p>Global oil prices tripled, supercharging inflation and weakening economic activity, creating the conditions for “<a href="https://www.rba.gov.au/education/resources/explainers/pdf/causes-of-inflation.pdf">stagflation</a>” (inflation with stagnating growth).</p>
<h2>Inflation</h2>
<p>Inflation peaked at almost 18% during the Whitlam years. It had been higher – almost 24% in 1951, under the Menzies government – and it had started climbing before Whitlam was elected. This was also due partly to global factors and partly to the McMahon government <a href="https://treasury.gov.au/publication/economic-roundup-issue-1-2013/economic-roundup-issue-1-2013/billy-snedden-the-challenge-of-incipient-inflation">spending big</a> to curry favour with voters. </p>
<hr>
<p><iframe id="6jxkB" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/6jxkB/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Unlike the Hawke-Keating government, which kept union demands for higher wages in check in exchange for “social wage” improvements, Whitlam failed to convince the unions to curb their wage demands. This made stagnation worse. </p>
<p>But his government did take steps to fight inflation. It revalued the Australian dollar and raised interest rates. It established a <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1467-8462.1974.tb00972.x">Prices Justification Tribunal</a> to discourage large companies from raising prices. </p>
<p>By the end of its term inflation was declining – though it was not until after the Reserve Bank <a href="https://www.tandfonline.com/doi/full/10.1080/10370196.2019.1615401">adopted inflation targeting</a> in the early 1990s that it was really back under control. </p>
<h2>Employment</h2>
<p>The unemployment rate rose – but perceptions of the severity of that rise were also coloured by comparisons with the historically low rates of the 1950s and 1960s. </p>
<hr>
<p><iframe id="AxVPG" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/AxVPG/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>At the end of 1975 the unemployment rate was 4.6% – less than the 5% long-term average. </p>
<h2>Budget spending</h2>
<p>Spending under the Whitlam government rose to its highest share of GDP since World War II. At the time, the opposition attributed this <a href="https://electionspeeches.moadoph.gov.au/speeches/1975-malcolm-fraser">to waste and extravagance</a>. </p>
<hr>
<p><iframe id="n4BKj" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/n4BKj/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>But no government since has returned spending levels to pre-Whitlam levels. This suggests the higher spending has mostly gone to things that are popular with the public.</p>
<p>The budget balance moved into deficit. This was unsurprising as the economy slowed under the impact of the oil shock.</p>
<hr>
<p><iframe id="4Lvtu" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/4Lvtu/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>This deficit no longer stands out, given those incurred in subsequent economic crises – the early-1990s recession, the global financial crisis of 2008, and the COVID-19 recession. It’s also worth remembering that some of the subsequent surpluses reflected the sale of public assets such as Telstra. </p>
<h2>The start of economic reform</h2>
<p>In some ways, the Whitlam government represents the start of the economic reform process that peaked during the Hawke-Keating years (1983-96). </p>
<p>Whitlam was sceptical of protectionism and started cutting tariffs. This was partly to reduce inflation by lowering import prices, but there was also a long-term goal to develop a more efficient economy. </p>
<p>His government implemented a new Trade Practices Act and reformed government entities such as tthe Post-Master General’s Department, which was replaced by the more commercially focused Telecom Australia and Australia Post.</p>
<p>The Whitlam government’s economic performance was certainly not perfect. But it deserves a better reputation than it has.</p><img src="https://counter.theconversation.com/content/195651/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Whitlam government’s economic performance was certainly not perfect. But it deserves a better reputation than it has.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1888312022-08-28T20:05:07Z2022-08-28T20:05:07ZAs the jobs summit talks skills – we predict which occupations will have shortages and surpluses in the next 2 years<p><em>This article is part of The Conversation’s series looking at Labor’s jobs summit. Read the other articles in the series <a href="https://theconversation.com/au/topics/jobssummit2022-125921">here</a>.</em></p>
<hr>
<p>Skills shortages are set to be a key theme at this week’s jobs summit. With the <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">unemployment rate</a> at its lowest level in a generation, employers and consumers are looking for solutions.</p>
<p>To understand where the shortages are, researchers can survey employers or count the number and duration of job vacancies. These methods are useful for establishing where shortages exist, but not so helpful in anticipating where new shortages might emerge. </p>
<p>At Victoria University we have created a <a href="https://www.copsmodels.com/ftp/workpapr/g-332.pdf">model-based analysis</a> in which likely paths for supply and demand of many types of jobs are forecast. This will be useful in anticipating where shortages might emerge over the next couple of years. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/yes-we-know-there-is-a-skills-shortage-here-are-3-jobs-summit-ideas-to-start-fixing-it-right-away-188833">Yes, we know there is a 'skills shortage'. Here are 3 jobs summit ideas to start fixing it right away</a>
</strong>
</em>
</p>
<hr>
<p>For jobs where supply is not keeping up with demand, the model finds that wages increase relative to the average wage. And for jobs where growth in supply is exceeding demand, the model finds that wages fall relative to the average.</p>
<p>Although business groups are calling for an <a href="https://theconversation.com/business-calls-for-catch-up-migration-as-participants-position-ahead-of-albaneses-jobs-summit-188703">increase in immigration</a>, we don’t consider this in the analysis. Instead, we focus on how to organise the people we have (which already factors in plenty of immigration) into the jobs that can best deliver the goods and services consumers want or need.</p>
<p>Forecasting the economy through to mid-2024, we put the occupations most likely to run into shortages or surpluses into four groups.</p>
<h2>1. Supply struggles to keep up</h2>
<p>Jobs with high wage growth and high employment growth are where we traditionally think of labour shortages. </p>
<p>For these jobs, demand is strong and supply will struggle to keep up. Most of the jobs in this group will be in demand from local consumers as our spending returns to normal after the pandemic. </p>
<p>They include jobs like <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Product+Lookup/1220.0%7EFirst+Edition,+Revision+1%7EChapter%7EUNIT+GROUP+4221+Education+Aide">education aides</a> who assist teachers in schools, personal carers and assistants in disability care and aged care, and several construction-related roles, which require certificate-level qualifications.</p>
<p>Nursing is another job where supply will struggle to keep up. Nursing requires at least a bachelor degree qualification, which means new nurses cannot be trained quickly.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1562719818188353536"}"></div></p>
<h2>2. Jobs nobody wants</h2>
<p>Then there are the “jobs nobody wants” (at least, as indicated by this analysis). These are jobs employers will struggle to fill, even though demand growth isn’t terribly strong. </p>
<p>Most of these roles require either a certificate qualification or no post-school qualification at all, and may be physically arduous or have inherently difficult working conditions. </p>
<p>This category includes prison security guards, truck drivers, food preparation assistants (who do dishwashing, prepare fast foods and assist chefs with ingredient preparation) and bricklayers. </p>
<h2>3. Attractive jobs</h2>
<p>Jobs with low wage growth are the attractive jobs. Remember that in the modelling, if supply to an occupation is strong, it will depress wage growth. </p>
<p>We find attractive jobs are those requiring bachelor degrees or higher qualifications. Young people are <a href="https://www.abs.gov.au/statistics/people/education/education-and-work-australia/latest-release">twice as likely</a> to have these qualifications than older Australians. Three in ten people aged between 25 and 34 hold a bachelor degree, compared to just three in 20 people aged over 55. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1562546944169644033"}"></div></p>
<p>As the older cohort retires and the younger cohort enters the job market, the supply of workers with bachelor degrees will grow, creating a strong supply of lawyers, engineers, accountants and architects.</p>
<p>Although these jobs are modelled to have relatively slow wage growth, these are generally high-wage white collar jobs offering good conditions and fulfilling work.</p>
<h2>4. Attractive but declining jobs</h2>
<p>These are jobs for which demand is expected to grow relatively slowly over the next two years, for a variety of reasons. </p>
<p>Unlike the jobs nobody wants, these jobs should not be difficult to fill. Demand for these roles will grow slowly due to workplace change. For example, hardly anybody uses typists these days. There are also fewer jobs for personal assistants, which have been replaced by more general roles such as “general clerk” who perform a range of administrative tasks. This is one of the roles where we find supply struggles to keep up. </p>
<p>While international travel remains in the doldrums, pilots are also on this list.</p>
<h2>What to do next?</h2>
<p>Labour shortages in some occupations make it difficult for businesses and governments to deliver the goods and services society wants. To address the shortages without changing the overall size of the population forecast (which already includes a large contribution from migration), increases in some types of jobs will mean reductions in others. </p>
<p>This makes the task more complicated than simply declaring we need more workers in the jobs that are in short supply.</p>
<p>Here are three suggestions:</p>
<ul>
<li><p>encourage and enable people to qualify quickly and cheaply for occupations where supply is not keeping up – in particular, personal carers, education aides and the construction-related occupations. This may require more places to be offered in existing courses at TAFEs or other vocational education providers, and it may require design of new, shorter qualifications. Fees for these qualifications should be reduced or removed altogether</p></li>
<li><p>offer more domestic bachelor degree places for students to study nursing and midwifery. These students may be diverted from other bachelor degree courses. These courses necessarily take time to complete, so including nurses in our migration intake will also need to play a role</p></li>
<li><p>allow wages to climb in low-skilled, less fulfilling jobs such as checkout operators and sales assistants, until such time as automation becomes worthwhile. After that, people who would have been doing these jobs can instead address shortages in hospitality, which is more difficult to automate, or undertake a small amount of training to qualify as personal carers and assistants or education aides.</p></li>
</ul>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/yes-we-know-there-is-a-skills-shortage-here-are-3-jobs-summit-ideas-to-start-fixing-it-right-away-188833">Yes, we know there is a 'skills shortage'. Here are 3 jobs summit ideas to start fixing it right away</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/188831/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Janine Dixon does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Modelling from Victoria University finds four groups of occupations most likely to have shortages of workers or an oversupply.Janine Dixon, Economist at Centre of Policy Studies, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1887162022-08-25T20:03:08Z2022-08-25T20:03:08ZIf productivity was the magical fix some claim, we wouldn’t need a jobs summit<figure><img src="https://images.theconversation.com/files/480533/original/file-20220823-18-nkq72x.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4139%2C2080&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>This article is part of The Conversation’s series looking at Labor’s jobs summit. Read the other articles in the series <a href="https://theconversation.com/au/topics/jobssummit2022-125921">here</a>.</em></p>
<hr>
<p>The Treasury <a href="https://treasury.gov.au/sites/default/files/2022-08/2022-302672-ip_0.pdf">issues paper</a> published in the lead-up to the Albanese government’s Jobs and Skills Summit runs to 11 pages of text. It mentions productivity 21 times.</p>
<p>It’s a safe bet that increasing productivity – put simply, looking at how Australia’s workers can produce more from the same inputs – will be a dominant theme in the summit’s crowded agenda.</p>
<p>That’s certainly the emphasis <a href="https://www.australianchamber.com.au/news/acci-chief-executive-andrew-mckellar-address-to-the-national-press-club-of-australia/">business groups want</a>. Their pre-summit messaging has stressed that productivity is the secret to prosperity and higher wages. </p>
<p>It’s an equally safe bet the summit will hear a familiar list of business-friendly measures – deregulation, lower business taxes, liberalised immigration – as the means to that end. </p>
<p>Productivity growth is important. It is a vital dimension of economic success. It creates the possibility for higher living standards. But it doesn’t automatically deliver them. </p>
<p>Yes, we want work to be as productive as possible, but always within the bounds of safety, quality and fairness. </p>
<p>An uncritical obsession with productivity threatens to distract us from the deeper problems Australia must solve to make economic and social progress in the 21st century.</p>
<h2>The wrong idea about productivity</h2>
<p>Productivity has gained a bit of a bad name after decades of technocratic <a href="https://www.pc.gov.au/inquiries/current/productivity/interim1-key-to-prosperity">inquiries</a> and pompous <a href="https://news.yahoo.com/one-third-of-aussie-workers-unproductive-and-lazy.html">browbeating</a> about how workers are unfocused or even lazy. </p>
<p>It is commonly misunderstood as anything that cuts costs, tightens belts or speeds up work. Some employers laughably describe wage cuts as a “productivity initiative” – turning economic theory on its head.</p>
<p>Properly measured, productivity means getting more out of what we put into the economy – first and foremost among these inputs is our labour. </p>
<p>It means valuing work and investing in workers, not cheapening and intensifying labour. It entails quality as much as quantity. Doubling pupil-student ratios in schools, or loading up nurses with extra patients, hardly improves genuine productivity. </p>
<p>In the decade prior to the COVID-19 pandemic, Australia’s productivity performance was certainly poor by historical standards. Labour productivity grew at an average annual rate of less than 1% – the slowest in the postwar era.</p>
<hr>
<p><iframe id="Jh8oF" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Jh8oF/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Australia’s productivity growth has been poor relative to other industrialised economies too, being <a href="https://www.oecd-ilibrary.org/economics/data/oecd-economic-outlook-statistics-and-projections_eo-data-en">below the OECD average</a> over the past two decades.</p>
<p>But this poor performance needs to be kept in perspective. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-productivity-growth-stalled-in-2005-and-isnt-about-to-improve-159706">Why productivity growth stalled in 2005 (and isn't about to improve)</a>
</strong>
</em>
</p>
<hr>
<h2>Productivity has never been higher</h2>
<p>First, productivity growth, even if slower than in the past, has still been positive. Hence the level of productivity demonstrated by the average Australian has never been higher. </p>
<p>In the three months to March (<a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">the most recent data available</a>), an average hour of expended labour produced A$110 worth of gross domestic product (GDP). Even after adjusting for inflation, that’s a 13% gain in the past decade. (Workers, on average, receive less than half of that in compensation.) </p>
<p>The productivity slowdown of the 2010s reflected a complex set of causes. Likely culprits include the growth of insecure, relatively unproductive service jobs; very weak business investment in capital and innovation; and falling productivity in resource extraction (due to the exhaustion of more economical reserves). </p>
<p>Nevertheless, productivity growth remained positive.</p>
<h2>There are signs of improvement</h2>
<p>Second, there are encouraging signs productivity has picked up since the pandemic.</p>
<p>Huge swings in employment and output during the lockdowns complicate productivity measures, but despite these ups and downs, labour productivity was 6% higher in March 2022 than before COVID. That’s an annualised growth rate of 2.6%, rivalling the most exuberant years of the postwar boom.</p>
<p>A post-COVID improvement in productivity is visible in <a href="https://www.nber.org/papers/w30267">other countries</a> too. </p>
<p>There is no consensus yet on its causes, or whether it will be sustained. Possible explanations include productivity benefits of working from home, and the fact that tight labour markets force employers to try harder to get more value from each worker (as it’s no longer easy to hire new staff).</p>
<h2>Yet wages continue to lag</h2>
<p>These two points demonstrate that productivity is no magic bullet for the other challenges facing Australia’s labour market. </p>
<p>Nor is it credible to blame lack of productivity for another big issue on the summit agenda: the historically weak growth in wages over the past decade.</p>
<p>Business leaders like to insist wage increases aren’t possible without productivity growth. But the actual problem for the past decade has been the opposite: productivity grew while real wages stagnated – and are now <a href="https://australiainstitute.org.au/post/real-wages-plunge-to-2012-levels/">falling rapidly</a> due to the surge in inflation.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/real-wages-are-shrinking-these-figures-put-it-beyond-doubt-183343">Real wages are shrinking, these figures put it beyond doubt</a>
</strong>
</em>
</p>
<hr>
<p>Consequently, the gap between productivity and real wages has widened dramatically.</p>
<hr>
<p><iframe id="yPhXC" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/yPhXC/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>In fact, the relationship between the two (which many economists assume to be automatic) has been broken for much longer.</p>
<p>Since the mid-1970s, economic and labour market policy in Australia deliberately <a href="https://johnmenadue.com/low-wages-deliberate-design-feature/">undermined wage growth</a> through measures such as weakening collective bargaining, downgrading the award system to a safety net, vilifying and policing unions, and (for many public sector workers) simply <a href="https://www.unionsnsw.org.au/wp-content/uploads/2022/06/WAGE-NORMS-AND-THE-LINK-TO-PUBLIC-SECTOR-SALARY-CAPS_final.pdf">dictating minimal wage gains</a>. </p>
<p>Not surprisingly, all this kept wage growth well behind productivity. As a result, the <a href="https://www.futurework.org.au/exploring_the_decline_in_the_labour_share_of_gdp">share of labour compensation in GDP</a> has fallen by 13 percentage points since the mid-1970s, reaching an all-time low of 45% this year. </p>
<p>The share of corporate profits in GDP, not coincidentally, increased by a similar margin, and is now at record highs.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/profits-push-up-prices-too-so-why-is-the-rba-governor-only-talking-about-wages-185688">Profits push up prices too, so why is the RBA governor only talking about wages?</a>
</strong>
</em>
</p>
<hr>
<p>These tectonic shifts in national income distribution refute the common assumption that workers are automatically paid according to their productivity. </p>
<p>Workers can be rightly sceptical that a generic commitment to revitalising productivity growth will automatically solve the problems they face – falling real wages, endemic insecurity and the erosion of collective representation.</p>
<p>To build a genuine consensus on productivity, therefore, the jobs summit must also advance a convincing vision for how the gains from productivity growth will be more fairly shared.</p><img src="https://counter.theconversation.com/content/188716/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>An uncritical obsession with productivity threatens to distract us from the deeper problems Australia must face and fix.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1879802022-08-04T05:52:15Z2022-08-04T05:52:15ZAvoiding a gas shortage is one thing, but what’s needed is action on prices<figure><img src="https://images.theconversation.com/files/477287/original/file-20220803-24-54pxzf.png?ixlib=rb-1.1.0&rect=0%2C532%2C3567%2C1975&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>The Albanese government <a href="https://www.minister.industry.gov.au/ministers/king/media-releases/government-responds-accc-gas-shortage-report">has accepted</a> the Australian Competition and Consumer Commission’s recommendation to “initiate the first step” to trigger the controversial <a href="https://www.industry.gov.au/regulations-and-standards/securing-australian-domestic-gas-supply">Australian Domestic Gas Security Mechanism</a> to avert a supply crisis in eastern Australia.</p>
<p>What the competition watchdog hasn’t recommended is what to do about the gas price, which has little to do with supply.</p>
<p>In its latest <a href="https://www.accc.gov.au/publications/serial-publications/gas-inquiry-2017-2025/gas-inquiry-july-2022-interim-report">half-yearly report</a> on gas supply, the ACCC predicts that, without action, eastern Australia will suffer a domestic gas shortage in 2023, and is concerned that already-high prices will go even higher. </p>
<p>The report identifies several causes. One is Russia’s war against Ukraine, which has European buyers seeking alternatives to Russian gas. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=917&fit=crop&dpr=1 600w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=917&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=917&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1153&fit=crop&dpr=1 754w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1153&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1153&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.accc.gov.au/system/files/ACCC%20Gas%20Inquiry%20-%20July%202022%20interim%20report%20-%20FINAL.pdf">Competition and Consumer Commission</a></span>
</figcaption>
</figure>
<p>Australian liquefied natural gas (LNG) exporters have been keen to meet this demand and reap the high prices they are willing to pay. </p>
<p>But the report also makes clear there are significant problems with the Australian gas market itself, with ineffective competition between gas producers, poor compliance, and an apparent lack of real commitment by gas exporters to the agreement they made with the federal government to ensure affordable and sufficient gas for domestic users.</p>
<p>Frustratingly though, the report has little to say (beyond expressing concern) about the more immediate issue of escalating domestic prices.</p>
<h2>Looming shortage</h2>
<p>The report identifies an east coast gas supply of 1.98 billion gigajoules in 2023 – well in excess of domestic demand of 571 million gigajoules.</p>
<p>1.3 billion gigajoules of that supply is needed to meet long-term LNG export contracts. The ACCC has identified there will be a shortfall of 56 million gigajoules if the LNG producers export all of the 167 million gigajoules they will have in excess their contract obligations.</p>
<p>To avoid this shortfall, the ACCC has recommended the government take the first step in initiating the <a href="https://www.industry.gov.au/regulations-and-standards/securing-australian-domestic-gas-supply">Australian Domestic Gas Security Mechanism</a>. This involves determining if 2023 will be a “shortfall year”. Federal resources minister has said the government will take this step.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-gas-trigger-wont-be-enough-to-stop-our-energy-crisis-escalating-we-need-a-domestic-reservation-policy-188057">The 'gas trigger' won't be enough to stop our energy crisis escalating. We need a domestic reservation policy</a>
</strong>
</em>
</p>
<hr>
<p>If the government finds it will be a shortfall year, it can require exporters to offer their uncontracted gas to the domestic market first.</p>
<p>Whether the government will need to do that will depend on negotiations with the exporters – in particular the three joint venture exporters and their associates the ACCC says have influence over close to 90% of proven and probable eastern Australian reserves. </p>
<p>The ACCC report expresses concern that some LNG exporters “not engaging with the
domestic market in the spirit” of an <a href="https://www.industry.gov.au/sites/default/files/2021-01/australian-east-coast-domestic-gas-supply-commitment-heads-of-agreement.pdf">agreement</a> they signed:</p>
<blockquote>
<p>Even if the behaviour could be proven to be technically compliant, we consider that some suppliers are not engaging with the domestic market in ways that are likely to result in supply agreements being reached and market conditions noticeably improving </p>
</blockquote>
<p>It is also concerned the joint venture operators might be breaching the Competition and Consumer Act by effectively engaging in joint marketing without ACCC approval. </p>
<p>Another concern is the cost of transmission, with pipeline owners enjoying local monopolies. The ACCC has stopped short of recommending regulating the prices they can charge.</p>
<h2>Few clues on prices</h2>
<p>Where the recommendations fall short is on what to do about rising prices. Even before the looming shortfall, wholesale and retail prices to businesses have been climbing steadily for a year. The report says some prices have been doubled.</p>
<p>The ACCC has been operating on the superficially reasonable basis that domestic gas prices should be no higher than international ones. </p>
<p>It has been using “export parity prices” to indicate what the price would be if the federal government’s agreement with LNG exporters was functioning well.</p>
<p>On that metric, the agreement is functioning well. Domestic prices have largely followed international prices. But those prices have soared from A$3-10 per gigajoule to well above A$40.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-did-gas-prices-go-from-10-a-gigajoule-to-800-a-gigajoule-an-expert-on-the-energy-crisis-engulfing-australia-184304">Why did gas prices go from $10 a gigajoule to $800 a gigajoule? An expert on the energy crisis engulfing Australia</a>
</strong>
</em>
</p>
<hr>
<p>The result is windfall profits to producers and unaffordable prices for domestic users of the kind that cannot be accepted as a well-functioning market.</p>
<p>The report makes no recommendation to address this problem.</p>
<p>While there have been arguments for a <a href="https://theconversation.com/the-gas-trigger-wont-be-enough-to-stop-our-energy-crisis-escalating-we-need-a-domestic-reservation-policy-188057">domestic reservation policy</a>, a better way to address the price problem is a “windfall profit” tax on gas producers.</p>
<p>Even the threat of such a tax should be a brake on unfair domestic prices. The ACCC could set a price threshold to trigger the tax. It could be tailored to the specific circumstances and made defensible against claims of <a href="https://theconversation.com/hey-minister-leave-that-gas-trigger-alone-it-may-fire-up-a-fight-with-foreign-investors-185710">sovereign risk</a>.</p>
<h2>A windfall profits tax would be a start</h2>
<p>Most of the findings of the latest gas inquiry report are neither new nor surprising. Yet their impact on gas users is heavy, and will get worse if further action is not taken. </p>
<p>The government has most of the tools it needs. It should act on the ACCC’s recommendations to meet the possible 2023 shortfall and on joint marketing. </p>
<p>It should go further on pipeline regulation, and it should implement a windfall profit tax to avoid catastrophic consequences for Australian gas users.</p><img src="https://counter.theconversation.com/content/187980/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Wood owns shares in several energy and resource companies via his superannuation fund </span></em></p>Even with enough supply, local gas prices have been skyrocketing. The ACCC has squibbed on possible reforms such as a windfall profits tax.Tony Wood, Program Director, Energy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1876182022-07-27T20:11:17Z2022-07-27T20:11:17ZChalmers’ challenge: why the treasurer’s words on the economy carry so much weight<p>When Bill Clinton’s campaign manager, James Carville, scrawled, “the economy, stupid” on a sign in 1992, he merely wanted the campaign volunteers to stick to their presidential candidate’s talking points.</p>
<p>After Clinton became president, Carville’s axiom – by then lengthened to “it’s the economy, stupid” – seemed pitch-perfect for the pro-market zeitgeist taking hold in most Western democracies.</p>
<p>Policy initiatives were increasingly dashed against this irreducible metric. The economy was emerging as an end in itself – as if separate from the people and reified as the foundation of happiness, national fulfilment and political success.</p>
<p>In Australia’s parliamentary system, economic ministers happily embraced placing the economy at the centre of all political conversation. The role of treasurer is often seen as the penultimate political position before becoming prime minister: if the person is seen as performing well in the role, they can become political stars. If not? Well, their political careers can be cut short. </p>
<p>Even before Clinton’s arrival in the White House, Paul Keating had come to dominate as Bob Hawke’s bold reforming treasurer – the architect of a new and determinedly rational Australian prosperity. Tariffs went by the wayside, the dollar was floated, government services were privatised.</p>
<p>Until 1983, the price of goods was “set by officials”, Keating told author George Megalogenis in 2015, lamenting that everything from wages to import tariffs and quotas had been centrally fixed.</p>
<blockquote>
<p>So when I became treasurer, on the Cabinet table sat the rate of exchange and interest rates […] I had to decide whether to be a passive participant in the scam, or to blow the scam up.</p>
</blockquote>
<p>Desperate to unlock the opportunities of global and regional integration, Keating also began educating Australian voters in the economic lexicon, frequently referring to the current accounts, the J-curve, monetary policy and inflation. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=908&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=908&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=908&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1141&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1141&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476230/original/file-20220727-17-rh9aec.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1141&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">As treasurer, Paul Keating brought economic terms into everyday political conversation – but he also gave us the recession ‘we had to have’.</span>
<span class="attribution"><span class="source">National Archives of Australia</span></span>
</figcaption>
</figure>
<p>The results of this new econo-politics were mixed. Keating said Australia risked being seen as a “banana republic” if it refused to pitch its producers and their markets against foreign competitors.</p>
<p>That made headlines, but it was his remark in the sharp downturn of November 1990 that really attracted criticism. Amid double-digit unemployment, he said this was the recession “we had to have” to tame inflation.</p>
<p>Intentionally or not, Keating had found the outer political limits of technical economic argument. So while he recovered to win the 1993 election (by then as prime minister), it was largely because the Liberals under John Hewson had delved even further into arcane economic jargon with his unpopular Fightback manifesto.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/issues-that-swung-elections-the-unlosable-election-of-1993-still-resonates-loudly-114924">Issues that swung elections: the 'unlosable election' of 1993 still resonates loudly</a>
</strong>
</em>
</p>
<hr>
<p>Several treasurers later, and the role of administering economic medicine now resides with Jim Chalmers, Anthony Albanese’s freshly minted treasurer. He will deliver his first budget on October 25. Before then, on July 28, he will deliver his state-of-the-economy address to parliament.</p>
<p>The circumstances he faces are diabolical.</p>
<p>Which is why in the weeks since Labor’s election Chalmers has been reframing expectations about what is achievable. And therefore, what is not.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/iOTZPifJBkU?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>An ongoing pandemic, natural disasters and a war in Europe following Russia’s illegal invasion have combined with the fiscal hangover of Australia’s effervescent (pre-election) COVID response. All of this has coalesced into a cost-of-living crisis.</p>
<p>Now that crisis is being deepened further by the use of monetary policy (interest rates) to bring inflation under control. Voters will be asked to accept that in order to stem rising prices, their housing costs will be dramatically increased. It is an argument only an economist could love.</p>
<p>A historically low jobless rate of 3.5% and strong demand two-and-a-half years into the pandemic reflect the previous government’s decisions to close the international border through 2020 and 2021, and to pump more than $300 billion into the economy to keep it buoyant. The result is an economy that is now faced with galloping inflation, capacity constraints and large budget deficits into the future.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/view-from-the-hill-chalmers-warns-hell-deliver-bad-news-187186">View from The Hill: Chalmers warns he'll deliver bad news</a>
</strong>
</em>
</p>
<hr>
<p>All with a budget heaving with a trillion dollars of debt, as Chalmers told parliament.</p>
<p>Hopes for reform possibilities under a new centre-left government are being hosed down as Chalmers girds voters for bad news.</p>
<p>His message is: do not to expect the direct cash handouts of the lockdown years because the national credit card is maxed out, and any such expenditure would feed inflation and send interest rates even higher.</p>
<p>Politically, the question is: will voters grant the new Labor government the latitude to navigate out of this inflation-and-interest-rate spiral, or will voters expect relief? Will they blame Labor for a situation that has been brewing since last year? And how culpable is the Reserve Bank for setting interest rates so low and promising to leave them there? </p>
<p>That may be a judgment for the review of the RBA Chalmers has asked to have back on his desk by March. That will be before he fills two vacancies on the board, and considers reappointing the current RBA governor, Philip Lowe.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476231/original/file-20220727-481-qu1qi1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chalmers has ordered a review of the Reserve Bank, due to report to him by March.</span>
<span class="attribution"><span class="source">Diego Fidele/AAP</span></span>
</figcaption>
</figure>
<p>Another element of Labor’s expectation adjustment is the conception of the economy itself.</p>
<p>Albanese believes it should be viewed through the prism of jobs and wages.</p>
<p>“It’s not an economy for itself, but it’s an economy in terms of the impact that it has on living standards,” he told 7.30’s Sarah Ferguson on Wednesday.
“We want an economy that works for people, not the other way around.”</p>
<p>Wednesday’s inflation number of 1.8% for the June quarter made for a worrying 6.1% rate of inflation over 12 months.</p>
<p>When Chalmers makes his economic statement to federal parliament on Thursday, fresh in his mind will be the <a href="https://blogs.imf.org/2022/07/26/global-economic-growth-slows-amid-gloomy-and-more-uncertain-outlook/">latest warning</a> from the International Monetary Fund that inflation will remain high globally until 2024.</p>
<p>“Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship. Central banks that have started tightening should stay the course until inflation is tamed,” said IMF economic counsellor Pierre-Olivier Gourinchas, in comments not a million miles away from saying this might be a recession we have to have.</p>
<p>But you won’t hear that from Chalmers.</p><img src="https://counter.theconversation.com/content/187618/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Kenny does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Jim Chalmers prepares to deliver grim news on the economy, he will choose his words carefully.Mark Kenny, Professor, Australian Studies Institute, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1869172022-07-14T07:52:14Z2022-07-14T07:52:14Z3.5% unemployment: Australia’s jobless rate at its lowest since 1974<figure><img src="https://images.theconversation.com/files/474085/original/file-20220714-17579-1j48rf.jpg?ixlib=rb-1.1.0&rect=0%2C581%2C3500%2C1744&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>It’s not an academic way to start an article about Australia’s latest jobs numbers, but all I can think is “wow”.</p>
<p>The official unemployment rate in June fell to 3.5%. It’s almost 50 years – August 1974, to be exact – since it was lower. </p>
<hr>
<p><iframe id="ZUjl6" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ZUjl6/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>How we got there was through more people getting hired: 88,400 people compared with 60,600 the month before. </p>
<p>This reduced total unemployment by 54,300, even as the labour force swelled by 34,200 to 14,093,000.</p>
<h2>90,000 new jobs a month</h2>
<p>After the hit to employment in 2021 from shutdowns due to the Delta variant of COVID-19, there was always going to be a rebound. But the strength is amazing. Since October last year, employment has grown, on average, by more than 90,000 people a month. </p>
<p>We can compare this with what happened during the initial recovery from the onset of COVID-19, from May 2020 to January 2021.</p>
<hr>
<p><iframe id="n63Ob" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/n63Ob/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>That recovery came after a much bigger loss of jobs compared with late 2021. This makes the past eight months more impressive. With less opportunity for catch-up, slower growth could reasonably have been expected. </p>
<h2>Climbing job vacancies</h2>
<p>Along with a record-high proportion of the population employed – 64.4% – there is a record-high proportion of vacant jobs: 3.4%. </p>
<hr>
<p><iframe id="oEQCK" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/oEQCK/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Exceptional growth in the demand for labour is encouraging people to join (or rejoin) the labour force. The proportion of the population in work or looking for work in June rose to 66.8%. </p>
<h2>But also record sickness</h2>
<p>Offsetting more people wanting to work, however, is more people being away from work ill. </p>
<p>In the first six months of 2022, on average, 5.2% of workers did fewer hours than usual due to illness. This compares to 3% in the same months from 2017 to 2019. </p>
<hr>
<p><iframe id="Pg6fZ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Pg6fZ/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>It’s likely some employers are needing to hire extra workers to cover for increased rates of absenteeism due to COVID-19 or the flu, adding to demand.</p>
<h2>So what about wages?</h2>
<p>The puzzle in all this is wages growth. How can we have unemployment so low and yet so little evidence of stronger wages growth? </p>
<p>Even with record low unemployment and record high job vacancy rates, in the 12 months to the end of March, wages grew by just 2.4%. This compares with prices (inflation) growing by 5.1%. Real wages therefore declined by 2.7%.</p>
<hr>
<p><iframe id="wdsUA" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/wdsUA/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>This lack of “market” response is most likely due to Australia’s institutional arrangements for wage-setting. These arrangements make some lag in wages responding to demand inevitable. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-theres-no-magic-jobless-rate-to-increase-australians-wages-176538">Why there's no magic jobless rate to increase Australians' wages</a>
</strong>
</em>
</p>
<hr>
<p>About 35% of employees are on enterprise bargaining agreements, which are renegotiated on average every two to three years. Those agreements might have annual wage increases built in, but based on the labour market as it was when the collective agreement was struck. </p>
<p>About 23% of employees are on awards – and increases to these are set by the Fair Work Commission just once a year. </p>
<p>Nevertheless, the Fair Work Commission’s decision last month to lift wages for award workers by up to 5.2% shows that wages do eventually reflect labour market conditions. A higher rate of wage growth should also happen progressively for workers covered by collective agreements, as employers adjust their expectations about what they need to pay to keep and attract employees. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/this-5-2-decision-on-the-minimum-wage-could-shift-the-trajectory-for-all-185117">This 5.2% decision on the minimum wage could shift the trajectory for all</a>
</strong>
</em>
</p>
<hr>
<p>Still, fears that wage increase will get out of hand, leading to a wage-price spiral as in the 1970s, are exaggerated. </p>
<p>Many factors have changed. In the 1970s, Australia had “pattern bargaining” – whereby if one group of workers got a big wage increase it would pretty much automatically flow to all other workers. This is no longer the case. Moreover, the decline in union representation, and the rise of technology and globalisation, have all made it more difficult for workers to bargain for higher wages.</p><img src="https://counter.theconversation.com/content/186917/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeff Borland receives funding from the Australian Research Council.</span></em></p>Australia has its lowest unemployment rates in almost 50 years – helped along by high numbers of employees off work sick.Jeff Borland, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1852232022-07-10T20:27:18Z2022-07-10T20:27:18ZDo Australians pay too much income tax? 6 charts on how we rank against the rest of the world<figure><img src="https://images.theconversation.com/files/473155/original/file-20220708-25-p8k8y8.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3968%2C1954&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Australians pay too much income tax – or so some argue. </p>
<p>The Australian Financial Review’s economics editor, John Kehoe, for example, <a href="https://www.afr.com/policy/tax-and-super/personal-tax-take-second-highest-in-oecd-20211206-p59f3y">has noted</a>:</p>
<blockquote>
<p>Australians are paying more personal income tax as a share of government revenue than any other advanced economy, except for the high-taxing Scandinavian welfare state of Denmark.</p>
</blockquote>
<p>And the day after the federal election, the AFR <a href="https://www.afr.com/policy/economy/australia-must-switch-to-the-right-tax-mix-20220516-p5altk">editorialised</a>:</p>
<blockquote>
<p>Too heavy reliance on taxing productive workers and business earnings blunts incentives to work, save and invest. </p>
</blockquote>
<p>Perhaps even more stinging is that the AFR considers New Zealand to have a better income-tax system. New Zealanders pay <a href="https://www.newzealandnow.govt.nz/live-in-new-zealand/money-tax/taxes">10.5%</a> on their first NZ$14,000 (then 17.5% up to NZ$48,000), while Australians enjoy a tax-free threshold <a href="https://www.ato.gov.au/rates/individual-income-tax-rates/">up to A$18,200</a>. The AFR <a href="https://www.afr.com/policy/economy/australia-must-switch-to-the-right-tax-mix-20220516-p5altk">says</a> this:</p>
<blockquote>
<p>creates tax-penalty work disincentives that partly explain New Zealand’s approximately 5% higher rate of workforce participation than Australia.</p>
</blockquote>
<p>Are these issues really a problem? If there is a case for tax reform, what sort of reform?</p>
<h2>High individual income tax</h2>
<p>In 2019, the most recent year for which the OECD has <a href="https://www.oecd.org/tax/revenue-statistics-australia.pdf">complete statistics</a>, Australia ranked second among OECD members on personal income tax as a share of total taxes.</p>
<hr>
<p><iframe id="yUWW5" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/yUWW5/8/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>In fact, it has ranked second or third in 36 of the past 40 years, and fourth in the other four years, swapping places with New Zealand and the United States.</p>
<h2>But that’s just part of the picture</h2>
<p>Overall, Australia’s level of taxation, measured as a proportion of GDP, is relatively low – 27.7% to the OECD average of 33.4%. </p>
<hr>
<p><iframe id="uHSCy" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/uHSCy/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>That makes Australia the 29th lowest-taxing nation of the OECD’s 38 members. </p>
<h2>Other nations have social security taxes</h2>
<p>The main reason Australia ranks so highly on individual income tax levels is because Australians don’t pay separate social security taxes.</p>
<p>Australia, New Zealand and Denmark fund social security from general government revenue. The other 35 OECD nations levy specific taxes on employers and employees to fund social security systems (unemployment support, age and disability pensions etc)</p>
<p>These account for an average 25.9% of total tax revenue, or close to 9% of GDP, across the OECD. </p>
<hr>
<p><iframe id="ppRaO" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ppRaO/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Employee social security contributions are <a href="https://www.jstor.org/stable/pdf/1910545.pdf">very similar to income taxes</a>. They are generally collected the same way, and counted as direct taxes on households or individuals in income surveys.</p>
<p>Though employers also pay social security taxes, <a href="https://voxeu.org/article/who-really-pays-social-security-contributions-and-labour-taxes">evidence suggests</a> about two-thirds of these are effectively paid by employees through lower wages.</p>
<p>In fact, if we add together personal income taxes and social security contributions, then Australia, rather than having the second-highest share of income taxes in the OECD, has the eighth-lowest.</p>
<hr>
<p><iframe id="Pus1V" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Pus1V/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<h2>What about superannuation?</h2>
<p>Some say Australia’s compulsory superannuation scheme, in which employers pay 10.5% of an employee’s wage as super, should be counted in these tax measures, because it is similar to social security contributions in other countries.</p>
<p>12 other OECD countries have mandatory employer-paid private pension schemes. </p>
<p>Employers pay this money directly into private accounts, not to the government, so it doesn’t meet the <a href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">definition of a tax</a>. </p>
<p>But for argument’s sake we can factor in super payments using “<a href="https://data.oecd.org/tax/tax-wedge.htm">tax wedge</a>” data. </p>
<h2>Combining mandatory payments</h2>
<p>A tax wedge is the ratio between the amount of taxes paid by an average worker (assumed to be single without dependents) and the corresponding total labour cost for the employer.</p>
<p>The important point here is that wedge data include both what employers pay as mandatory private payments and as mandatory payments into government social security.</p>
<p>On this measure, Australia’s direct tax burden is the 11th lowest in the OECD.</p>
<hr>
<p><iframe id="n6aKX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/n6aKX/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>So claims we have very high shares of personal income taxes are only part of the picture. Superannuation does not change the story significantly.</p>
<h2>So what about New Zealand?</h2>
<p>New Zealand does collect more revenue through consumption taxes – <a href="https://data.oecd.org/tax/tax-on-goods-and-services.htm#indicator-chart">12.5% of GDP</a> in 2019, compared to 7.3% for Australia.</p>
<hr>
<p><iframe id="TXYYM" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/TXYYM/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>But it still collects more in income taxes – <a href="https://data.oecd.org/tax/tax-on-personal-income.htm#indicator-chart">12.4% of GDP compared to 11.6%</a>. Its total level of taxation is <a href="https://data.oecd.org/tax/tax-revenue.htm#indicator-chart">33.4% of GDP</a>, compared to 27.7% for Australia.</p>
<h2>The case for tax reform</h2>
<p>Even so, there are things to learn from New Zealand. </p>
<p>Australia’s system could be structured better. As Louis XIV’s finance minister, <a href="https://www.economist.com/special-report/2014/02/20/plucking-the-geese">Jean-Baptiste Colbert</a> (1619-1683), said, the art of taxation is about “plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”.</p>
<p>Income taxes are highly visible. This may make us more ready to believe we are highly taxed. There is a case for considering tax reforms that deliver adequate revenue more fairly.</p>
<p>New Zealand is in the process of this change, with its proposed <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2021/November/NZ-Social-Unemployment-Insurance">Social Unemployment Insurance scheme</a> being funded by a 1.39% levy on employers and workers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/beyond-gdp-chalmers-historic-moment-to-build-wellbeing-184318">Beyond GDP: Chalmers' historic moment to build wellbeing</a>
</strong>
</em>
</p>
<hr>
<p>Last month the Australian Treasury’s secretary, Steven Kennedy, said <a href="https://treasury.gov.au/speech/address-australian-business-economists-0">in a speech</a> it was possible for the government to spend more on things “that improve lives”, such as higher-quality aged care and disability services, “while reducing pressures arising from poorly designed policies”:</p>
<blockquote>
<p>We will need a tax system fit for purpose to pay for these services, that appropriately balances fairness and efficiency. This is achievable.“</p>
</blockquote>
<p>Given the inevitable challenges of an ageing population, climate change and international uncertainty, anything that moves the national conversation on from misleading comparisons with other nations can only help.</p><img src="https://counter.theconversation.com/content/185223/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford receives funding from the Australian Research Council. He is a Fellow of the Centre for Policy Development.</span></em></p>Compared with other OECD nations, Australians pay much less tax than some headline statistics suggest.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1862122022-07-05T07:53:29Z2022-07-05T07:53:29ZRates climb to 1.35% – RBA on mission to whip inflation<figure><img src="https://images.theconversation.com/files/472440/original/file-20220705-18-55xkmw.jpg?ixlib=rb-1.1.0&rect=0%2C723%2C5804%2C2774&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There was no suprise in the board of the Reserve Bank of Australia lifting interest rates at its July meeting. The only question was by how much.</p>
<p>Would it be a “regular” increase of 25 basis points? Or a double-whammy of 50. The markets tipped the double, and were proved right. The central bank lifted its cash rate target from 0.85% to 1.35% – taking Australia’s official interest rate to its highest level since July 2019.</p>
<p>This is sign of how seriously governor Philip Lowe and his fellow board members regard the threat of domestic inflationary pressures and a hot labour market to economic stability. Expect more action to follow.</p>
<h2>Not all inflation is international</h2>
<p>The primary reason the decision is the surge in inflation across the Australian economy.</p>
<p>In part rising prices have been driven by events overseas – principally Russia’s war on Ukraine pushing up oil and food prices. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/1970s-style-stagflation-now-playing-on-central-bankers-minds-185868">1970s-style stagflation now playing on central bankers' minds</a>
</strong>
</em>
</p>
<hr>
<p>But it’s not just a supply issue. Rising demand for goods and services in Australia are contributing just as much to the bank’s expectation that inflation, having surpassed 5% in the March quarter, will reach 7% by the end of 2022.</p>
<hr>
<p><iframe id="dfbo1" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/dfbo1/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Evidence of this can be seen in the Australian Bureau of Statistics’s latest report on inflation. It shows that, even excluding food and fuel, prices across the economy rose by 4% over the past year. </p>
<p>My own <a href="https://gross.substack.com/p/breaking-down-inflation">analysis</a> of these numbers suggests most of the current inflation surge is being driven by higher demand. This is something best solved by tighter monetary policy (to restrict spending) and thus higher interest rates.</p>
<p>On top of rising prices, Australia’s labour market is also running piping hot. The unemployment rate of 3.9% is the lowest level in 40 years.</p>
<p>The number of businesses looking to hire new workers is at an all-time high, with <a href="https://www.abs.gov.au/media-centre/media-releases/quarter-businesses-unable-find-suitable-staff">27% having difficulties</a> filling positions, according to the Australian Bureau of Statistics. </p>
<p>This strong demand for labour is putting upwards pressure on wages, which will keep inflation high if not offset with higher interest rates.</p>
<h2>Further hikes likely</h2>
<p>A big challenge the Reserve Bank of Australia faces when setting interest rates is that inflation data from the Australian Bureau of Stastistics is only published every three months. </p>
<p>Overseas counterparts have the benefit of monthly inflation data. But at its July meeting the RBA board had to rely on inflation data published in late April. The RBA is flying somewhat blind until the next inflation report in June. What that report shows will be a key factor as to how high interest rates will rise over the rest of the year.</p>
<p>Last month the financial markets expected the cash rate would eventually peak at about 4% in 2023. They’ve since reduced this forecast to a high of 3.3%. </p>
<p>Still this would push the average interest rate that home buyers are paying on their mortgage to more than 5%.</p>
<p>The market predictions imply the RBA board will, over the five monthly meetings it has left in 2022, increase interest rates by an average 0.33 percentage points each time. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/sky-high-mortgages-7-1-inflation-and-a-20-chance-of-recession-how-the-conversations-panel-sees-the-year-ahead-185411">Sky-high mortgages, 7.1% inflation, and a 20% chance of recession. How the Conversation's panel sees the year ahead</a>
</strong>
</em>
</p>
<hr>
<p>Some doubt rates will rise that high that fast. But over the past year the markets have been much better at forecasting interest rates than economists and the Reserve Bank’s own guidance. We should ignore these market signals at our peril.</p>
<p>So expect – and plan for – interest rates to increase every month for the rest of the year.</p><img src="https://counter.theconversation.com/content/186212/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isaac Gross does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Reserve Bank of Australia has delivered a ‘double-whammy’ interest rate rise, with up to five more to come in 2022.Isaac Gross, Lecturer in Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1829532022-05-12T12:20:54Z2022-05-12T12:20:54ZGrattan on Friday: It’s Albanese’s to lose, as Morrison looks for some momentum<p>The Liberals have used John Howard extensively during this campaign. These days, they celebrate their party hero as the great winner. He was, however, the last Liberal prime minister to take his party into the wilderness. </p>
<p>There are comparisons and contrasts between 2007 and 2022. In each election the Coalition government was “old” – in 2007 it was seeking a fifth term; now it’s asking for a fourth. </p>
<p>People were “over” Howard, as they’re “over” Scott Morrison. But the feeling against Howard was that he’d had his time – it’s visceral against Morrison. </p>
<p>Kevin Rudd was a fresh face, plugged into the rising issue of the times, climate change. Anthony Albanese often projects more as old Labor than future Labor. </p>
<p>Oh, and interest rates went up by 25 basis points during each campaign – to 6.75% (an 11 year high) in 2007 and to 0.35% in 2022 (still at rock bottom). </p>
<p>Despite Albanese’s campaign hiccups, at the end of this penultimate week, based on the objective evidence, the election appears his to lose. </p>
<p>The Australian newspaper’s <a href="https://www.theaustralian.com.au/nation/federal-election-2022-labor-to-win-modest-majority-with-80-seats-yougov-poll-predicts/news-story/84c4634d4fd3671e5194a2c5739b3e2c">YouGov poll</a>, which surveyed almost 19,000 people across all lower house seats between April 14 and May 7, had Labor on track to majority government. </p>
<p>This is not predictive – it’s a snapshot. Both sides know the final campaign days provide risks and opportunities. </p>
<p>A sizeable number of voters have yet to firm up their decisions. In particular, how will soft Liberal voters who are put off by Morrison break? Between those who opt to swallow hard and stick with the government and those who can’t stomach the PM any longer? </p>
<p>But to state the obvious, Morrison has a short time in which to try reduce a big margin. Last minute scare campaigns can play effectively; unexpected developments can change the dynamics. But that’s only if enough voters in the right seats retain an open mind.</p>
<p>The Liberals have left their launch, to be held in Brisbane on Sunday, until the last moment. New policy will be announced. Morrison needs to garner some momentum from it for the home run. </p>
<p>Next week will see the release of important economic data, on unemployment and wages. The government will be hoping the unemployment figure, most recently 4%, will have a three in front of it. That would be good news for the Coalition’s economic pitch. </p>
<p>The wages number could play to Labor. </p>
<p>Wages growth was 2.3% in the year to December. Any increase on that for the year to March would be expected to be small. The Reserve Bank has forecast wage growth of 2.7% in the year to June, indicating it doesn’t anticipate much in March. </p>
<p>If next week’s figure is modest, Labor will be able to use it to highlight its case that many people are going backwards in real terms, given the 5.1% inflation rate. </p>
<p>One skill in politics is to be able to turn a negative into a neutral, or a positive, and Albanese did this in the argument over wages and inflation this week. </p>
<p>He initially slipped up, when he embraced the desirability of the minimum hourly wage being increased by 5.1%, to match inflation. The reasons he should not have been so precise have been well canvassed.</p>
<p>But when subsequently he translated such a rise into “two coffees a day”, the proposition would look to many voters more than reasonable (regardless of some counter economic arguments). </p>
<p>Morrison jumped on Albanese’s wages position as evidence the opposition leader did not understand economic matters, with the derogatory put down that “Anthony Albanese is a loose unit on the economy.” But that meant the prime minister was advocating a real wage cut for the lowest paid workers. </p>
<p>The Albanese-as-risk claim is about the best attack line the government has got, but when the debate is about wages, the government is fighting on Labor’s preferred turf. </p>
<p>If Albanese’s campaign has had mistakes and glitches, Morrison’s is undermined by the very obvious fact he’s leading a divided party. </p>
<p>Hardly any Liberals would have heard of Katherine Deves before she shot to prominence as Morrison’s captain’s pick for Warringah. Now her views on transgender issues, which the PM thinks will work for him among some ethnic voters, are causing the Liberals serious internal and external angst. </p>
<p>In a video, former prime minister Tony Abbott, who lost Warringah to independent Zali Steggall in 2019, has urged reluctant Liberal members in the seat to get behind Deves. </p>
<p>“The more I see of Katherine Deves the more impressed I am with her courage, with her common sense, with her decency and with quite frankly her capacity to win this seat back for the Liberal Party,” Abbott says. </p>
<p>Voters’ disgruntlement with Abbott’s high profile campaign against marriage equality was a factor in his defeat in 2019. His words about Deves suggest he remains tone deaf to the views of many in the party and the public within his old seat. </p>
<p>While Abbott lavishes praise on Deves, treasurer Josh Frydenberg, fighting for his political life against a teal candidate in Kooyong, was again distancing himself from Morrison’s defence of her. </p>
<p>“I myself have been very clear in rejecting what Katherine Deves has been saying. Her comments have been insensitive, they’ve been inappropriate,” he reiterated on the ABC. </p>
<p>Morrison has said that in his “captain’s pick” candidates for various NSW seats he was anxious to run women. </p>
<p>A <a href="https://giwl.anu.edu.au/research/publications/election-22-glass-cliff-candidates">study</a> by the Australian National University’s Global Institute for Women’s Leadership, released Thursday, of candidates from the major parties found only about 20% of female Coalition candidates are running in safe seats. This compares with 46% of male candidates. More than half (51%) of Coalition women candidates are running in marginal seats – under 6% – compared with 25% of male candidates.</p>
<p>Some “80% of female candidates in the Coalition are […] running in seats they are unlikely to win, or that are precarious to hold. The equivalent proportion of men running in these seats is 54%,” the study says.</p>
<p>If the Liberals lose this election, addressing the women problem will be among many issues confronting a shattered party. </p>
<p>Meanwhile women present a major obstacle in Morrison’s attempt to pull this election out of the fire. </p>
<p>The female teal candidates will be attractive to women voters in those seats. More generally, Morrison is significantly more unpopular with women than with men. Women voters could be in the vanguard if May 21 delivers him a mortal blow.</p><img src="https://counter.theconversation.com/content/182953/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite Albanese’s campaign hiccups, at the end of this penultimate week, based on the objective evidence, the election appears to be his to lose.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1783272022-03-03T19:09:35Z2022-03-03T19:09:35ZVital Signs: Australia’s hairdressing-led economic recovery can’t last<figure><img src="https://images.theconversation.com/files/449708/original/file-20220303-21-1gqfrlx.jpg?ixlib=rb-1.1.0&rect=189%2C21%2C4424%2C2908&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>“It’s difficult to make predictions, especially about the future,” American baseball legend Yogi Berra once quipped. When it comes to predicting where the Australian economy is heading the task is made even trickier in the face of war in Europe and uncertainty about the global energy and other markets.</p>
<p>This week there was some good news. Australia’s economic growth (GDP) bounced back strongly in the last quarter of 2021, up <a href="https://theconversation.com/wednesdays-gdp-numbers-are-impressive-but-they-are-for-the-december-quarter-when-we-were-bouncing-back-from-delta-177821">3.4%</a>, according to Australian Bureau of Statistics figures. </p>
<p>This was a turnaround from the 1.9% decline in GDP in the September quarter.</p>
<hr>
<p><strong>Australian quarterly gross domestic product</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449364/original/file-20220302-23-15ler5k.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Chain volume measures, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>It is often noted, however, that GDP is an imperfect measure – it doesn’t capture things such as unpaid work. It is also “backward-looking”. </p>
<p>The figures tell us what happened at the end of last year, at a time when what we would really like to know is what is going to happen this year, and beyond.</p>
<p>That said, they provide useful clues.</p>
<h2>Splurge-based recovery</h2>
<p>The 3.4% growth was generated almost entirely by consumer spending (3.2 percentage points) with the rest due to changes in inventories and trade.</p>
<p>Government spending made no contribution. Investment (both private and public) was actually a drag, knocking 0.3 and 0.1 percentage points off growth.</p>
<p>This isn’t all that surprising. After months of lockdowns in much of Australia, people wanted to spend. </p>
<p>In the September quarter household savings soared to 19.8% of income. In the December quarter they fell to 13.6% as people splurged on things they couldn’t spend on while they had been locked down. </p>
<hr>
<p><strong>Household final consumption expenditure</strong></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=310&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=310&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=310&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=390&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=390&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449434/original/file-20220302-23-1acvc7q.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=390&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">December quarter growth in real household final consumption expenditure.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>Spending on “accommodation and food services” jumped 26.1%. Personal and other services (such as haircuts and beauty treatments) grew 15.4%. Air transport expenditure rose a massive 56.5%, though, as economists say, it was was “strong growth off a low base”.</p>
<p>In other words, many people couldn’t get a haircut or go to a restaurant or fly in the third quarter of 2021. In the fourth quarter they could – and did. </p>
<p>This is reinforced by the fact the strongest ouput growth (6.7%) was in New South Wales, where the lockdown arguably bit the most mid-year.</p>
<hr>
<p><strong>State final demand, December quarter</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=201&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=201&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=201&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=253&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=253&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449647/original/file-20220302-23-mljvg1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=253&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>Of course, Omicron hit hard in mid-December, but too late to have a big impact on the quarterly figures. </p>
<p>We will see more of Omicron’s impact in the numbers for the March quarter, due to be released after the May election.</p>
<p>On the plus side, households still have a large stock of savings compared with pre-pandemic levels. </p>
<p>The $424 billion consumer “<a href="https://www.news.com.au/finance/small-business/josh-frydenberg-reveals-private-savings-war-chest-after-criticism-of-business-support/news-story/21fc54b4949b485a74371488c43588fb">war chest</a>” Treasurer Josh Frydenberg has rightly been talking up puts us in a good position to spend, building a sustained recovery.</p>
<hr>
<p><strong>Household saving ratio</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449372/original/file-20220302-27-180zpm5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Ratio of saving to net-of-tax income, seasonally adjusted.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">ABS National Accounts</a></span>
</figcaption>
</figure>
<hr>
<p>Can Australia’s spending-led-recovery continue in 2022? Perhaps, but there are reasons to be concerned. </p>
<p>The mechanical point is that the GDP figures for the December quarter are only impressive when you fail to remember they were bouncing back from a decline of 1.9% in the September quarter (so-called negative growth). </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/wednesdays-gdp-numbers-are-impressive-but-they-are-for-the-december-quarter-when-we-were-bouncing-back-from-delta-177821">Wednesday's GDP numbers are impressive, but they are for the December quarter, when we were bouncing back from Delta</a>
</strong>
</em>
</p>
<hr>
<p>A less mechanical concern is that the world is now awash with uncertainty. </p>
<p>The largest European conflict since the second world war threatens to upend everything from peace and security to global supply chains and financial markets.</p>
<p>The Reserve Bank governor referred to “a major new source of uncertainty” after his board meeting on Tuesday.</p>
<p>Domestically, we still don’t know whether inflation is just returning to regular programming or getting away from us.</p>
<h2>What’s ahead</h2>
<p>Like many economists, I favour the former interpretation. Anyone who tells you they know for sure is delusional. </p>
<p>Aggressive wages claims, if successful, <em>could</em> be the genesis of a wage-price spiral, sending inflation systemically higher, but we don’t know.</p>
<p>The Reserve Bank is going to raise interest rates sooner rather than later. </p>
<p>It could be mid-year or delayed many months, but eventually rates will climb to align with the so-called “neutral rate of interest” - the level that keeps the economy on an even keel, with unemployment low and inflation stable. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-theres-no-magic-jobless-rate-to-increase-australians-wages-176538">Why there's no magic jobless rate to increase Australians' wages</a>
</strong>
</em>
</p>
<hr>
<p>There is considerable uncertainty about what that rate is. </p>
<p>In the 1990s and early 2000s the Reserve Bank thought it was between 3% and 4%. Now it’s hard to dispute it is lower, but not as low as 0.1%, where rates are now. Either way, it suggests meaningful rate rises are coming.</p>
<p>All of these factors will feed into future rate rises – which will dent spending by Australia’s highly leveraged households.</p>
<p>In short, getting sustainable GDP growth back to the 3% plus it used to be will require more than just a consumer spending binge. It will require the hard work of productivity growth.</p>
<h2>The budget looms</h2>
<p>In 2021, for the first time, the federal budget set out four years of “forecasts” instead of two years of forecasts and two years of “projections”. </p>
<p>It has an important implication. It means this year’s budget will need to take a more formal and rigorous view about the next four years – in particular about the international environment in which Australia sits. </p>
<p>The budget is due in less than four weeks. The big question is what will be needed to drive the economy in the years ahead. It will require more than a rebound in restaurant meals and haircuts.</p>
<p><iframe id="Omhhs" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Omhhs/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/178327/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>Australia’s GDP was up 3.4% last quarter of 2021, on the back of pent-up consumer spending. Other factors must drive future growth.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1778292022-02-25T03:14:00Z2022-02-25T03:14:00ZHow Russia’s invasion of Ukraine will ripple through the global economy and affect Australia<p>When Vladimir Putin became the <a href="https://russia.embassy.gov.au/mscw/relations.html">first Russian leader</a> to visit Australia – for the 2007 APEC summit in Sydney – I had a chance to ask him what he thought of Australia.</p>
<p>“I never think of Australia,” he replied. </p>
<p>Putin has probably not thought of Australia much since, apart from the fuss we made over Russian-backed rebels in Ukraine shooting down Malaysian Airlines MH17 in 2014, and his visit to Brisbane in 2014 for a G20 leaders summit. </p>
<p>Russia and Australia have limited economic ties. But Russia’s invasion of Ukraine will ripple through the global economy, reaching as far as Australia. Russia’s actions are already affecting things like petrol prices. </p>
<p>More significantly Putin’s belligerence could further destabilise our already fraught relationship with China, our most important trading partner. </p>
<p>So Australia certainly has reason to think about Putin’s actions now.</p>
<h2>Russia’s crucial role in the global economy</h2>
<p>Measured by gross domestic product, Russia is the world’s 11th biggest economy, just behind South Korea and in front of Brazil. Its 2020 GDP of US$1,646 billion wasn’t much bigger than Australia’s (in 13th spot, with US$1,610 billion).</p>
<p>But Russia matters to the global economy because, like Australia, it is a major global supplier of natural resources such as oil, gas, coal, metals and wheat.</p>
<p>Disruption of these supplies could happen through Western sanctions on Russia, or through Russia cutting off supplies – or both. </p>
<p>The intention in either scenario is to punish the other side. The effect on the global economy, already threatened by inflation and COVID-related supply side shocks, will be the same.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-russias-war-means-for-australian-petrol-prices-2-10-a-litre-177719">What Russia's war means for Australian petrol prices: $2.10 a litre</a>
</strong>
</em>
</p>
<hr>
<h2>Expect international price rises</h2>
<p>Russia is also a major global supplier of metals such as aluminium and palladium, a rare and expensive metal used in catalytic converters to reduce toxic exhaust emissions from cars and other vehicles. </p>
<p>Palladium has other important uses too, including in hydrogen fuel technology. Russia accounts for about 40% of global supply. </p>
<p>Sanctions banning Russian imports will naturally reduce global supply and increase the prices of these resources, as well as the products made from them. </p>
<p>How much of an inflationary effect this causes will depend on how much other suppliers increase their output, or whether Russia can increase sales to other buyers not participating in sanctions. China, for example, has ended all restrictions on <a href="https://www.scmp.com/economy/china-economy/article/3168278/ukraine-crisis-deepens-china-lifts-all-wheat-import">wheat imports from Russia</a></p>
<p>Putin has built strong ties <a href="https://www.wsj.com/articles/as-oil-nears-100-saudis-snub-u-s-stick-to-russian-pact-amid-ukraine-crisis-11645015415">with Saudi Arabia</a>, Iran and other oil-producing and non-democratic states as a bulwark against the West. So replacing Russian supplies and enforcing sanctions effectively won’t be easy.</p>
<h2>Europe’s vulnerability</h2>
<p>The European Union is particularly vulnerable to supply shocks, due to its heavy reliance on <a href="https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html#carouselControls?lang=en">energy imports</a>, with 41% of the natural gas and 27% of the crude oil it consumes coming from Russia. </p>
<p>For Germany, Europe’s economic powerhouse, about 34% of oil imports and 35% of its gas imports <a href="https://www.cleanenergywire.org/factsheets/germanys-dependence-imported-fossil-fuels">come from Russia</a>. This makes the German government’s decision to halt the Nord Stream 2 gas pipeline being laid in the Baltic Sea between Russia and Germany a gutsy call. </p>
<p>Given the central role of German manufacturing to European supply chains, disruptions to its energy supply will have major global economic implications. </p>
<h2>The biggest risks for Australia</h2>
<p>In the very short term, there may be some upsides for Australian exporters, such as wheat farmers. </p>
<p>Russia is the world’s biggest wheat exporter and Ukraine, long known as Europe’s bread basket, is the fifth (<a href="https://www.worldstopexports.com/wheat-exports-country/">Australia is sixth</a>).</p>
<p>The likely disruption to these supplies can be expected to increase the world wheat price, as happened in 2014 when Russia <a href="https://www.theguardian.com/business/2014/mar/03/ukraine-crisis-crimea-hits-price-wheat-corn">annexed Crimea</a>. </p>
<p>Australia is also a <a href="https://www.statista.com/statistics/217856/leading-gas-exporters-worldwide/">major natural gas exporter</a>. However, because it exports that gas by ship (as liquefied natural gas) rather than through pipelines, there are constraints on it increasing exports in the near term. </p>
<p>So some Australian exporters who compete with Russian suppliers should benefit from higher prices in the short run. But these benefits will soon be overrun by the adverse impact of global economic disruption. </p>
<p>The biggest risk to Australia, though, is if China decides to follow Russia’s lead. </p>
<p>We saw at the Beijing Winter Olympics the warming of what has historically been a frosty Sino-Russian relationship. Putin and Xi Jinping have much in common. </p>
<p>If Xi sees the West being divided and weak over Ukraine, as it was over Afghanistan, then he may make matters tougher for Taiwan. This would jeopardise Australia’s trade with China. </p>
<h2>What else can be done?</h2>
<p>All the signs are that Putin is prepared to ride out sanctions, gambling that he has enough reserves to tough them out or enough friends to undermine their effectiveness. </p>
<p>What else can be done? </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-can-the-west-do-to-help-ukraine-it-can-start-by-countering-putins-information-strategy-177912">What can the West do to help Ukraine? It can start by countering Putin's information strategy</a>
</strong>
</em>
</p>
<hr>
<p>One option is a strong economic strengthening of Ukraine through trade and infrastructure measures. This could include the European Union granting Ukraine preferential trade and investment deals, and the Western allies assuring it favourable supply of natural resources. </p>
<p>Russia may like to intimidate, but it doesn’t have the economic strength of a united opposition, including the US, European and Asia-Pacific nations.</p>
<p>There may not be an immediate military solution, nor a neat diplomatic fix. But the economic dimensions to the crisis may be more in favour of Ukraine than first meets the eye.</p><img src="https://counter.theconversation.com/content/177829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Harcourt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite limited direct economic ties, Russia’s invasion of Ukraine has important consequences for Australians too.Tim Harcourt, Industry Professor and Chief Economist, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1765622022-02-18T04:22:51Z2022-02-18T04:22:51ZPerceptions of corruption are growing in Australia, and it’s costing the economy<figure><img src="https://images.theconversation.com/files/446204/original/file-20220214-13-s131c.jpg?ixlib=rb-1.1.0&rect=0%2C1104%2C5281%2C2640&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>The Australian government has decided not to establish a federal anti-corruption watchdog this parliamentary term, despite a promise <a href="https://www.pm.gov.au/media/commonwealth-government-establish-new-integrity-commission">in December 2018</a> to deliver an integrity commission </p>
<blockquote>
<p>with teeth, resources and proper processes that will protect the integrity of Australia’s Commonwealth public administration</p>
</blockquote>
<p>In the three years since that promise was made, Australia <a href="https://theconversation.com/australia-and-norway-were-once-tied-in-global-anti-corruption-rankings-now-were-heading-in-opposite-directions-174966">has slipped</a> further down the international corruption league tables. </p>
<p>On the respected Corruption Perceptions Index compiled by <a href="https://www.transparency.org/en/cpi/2021">Transparency International</a>, it is now in 18th position, down from 13th in 2018. </p>
<p>A decade ago Australia was seventh.</p>
<p>The Corruption Perceptions Index both ranks and rates countries on a scale out of 100. Australia’s score in 2012 was 85. In 2021 it was 73. </p>
<p>This 12-point drop is, along with Hungary’s fall <a href="https://www.economist.com/briefing/2019/08/29/how-viktor-orban-hollowed-out-hungarys-democracy">from 55 to 43</a>, equal worst among the 38 nations in the OECD – the economies with institutions and cultures most comparable to Australia.</p>
<p>New Zealand, by comparison, has consistently been in the top three, with scores between 88 and 91.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/446188/original/file-20220214-19-1qrnfc8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Does Australia’s decline in this index really matter? Its score is, after all, still comparatively high, and the Corruption Perceptions Index is only a proxy measure of corruption. </p>
<p>Yes, it does. Dozens of studies have demonstrated the corrosive economic effect of corruption, and perceptions are almost as important as reality in guiding economic decisions. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-and-norway-were-once-tied-in-global-anti-corruption-rankings-now-were-heading-in-opposite-directions-174966">Australia and Norway were once tied in global anti-corruption rankings. Now, we're heading in opposite directions</a>
</strong>
</em>
</p>
<hr>
<p>Based on studies correlating corruption indices with economic impacts, I estimate the difference between Australia’s 2012 and 2021 ratings equates to 0.6% lower economic growth. </p>
<p>This translates to about 60,000 extra new jobs and an extra A$10 billion in government revenue a year.</p>
<h2>The value of measuring perceptions</h2>
<p>Because corruption is hard to measure – not least because it’s generally illegal – the <a href="https://www.transparency.org/en/cpi/2021">Corruption Perceptions Index</a> does the next best thing. </p>
<p>Measuring perceptions is useful, particularly when considering economic impacts. Perceptions are critical in investment decisions – whether it be a major corporation investing in a billion-dollar project, a small business borrowing money to expand, or an individual taking on a debt to get a university degree. </p>
<p>Any impression a system is “rigged”, and that “who you know” is more important than how hard or smart you work, acts as a disincentive against taking risks.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-the-luxuries-that-give-it-away-to-fight-corruption-follow-the-goods-113553">It's the luxuries that give it away. To fight corruption, follow the goods</a>
</strong>
</em>
</p>
<hr>
<p>The Corruption Perceptions Index’s credentials are strengthened by it being a survey of expert surveys, drawing on 13 different data sources from 12 authoritative institutions. </p>
<p>These include the World Economic Forum’s <a href="https://www.weforum.org/reports/global-risks-report-2022/in-full/appendix-b-executive-opinion-survey-national-risk-perceptions">Executive Opinion Survey</a>, the World Justice Project’s <a href="https://worldjusticeproject.org/rule-of-law-index/">Rule of Law Index</a>, the Economist Intelligence Unit’s <a href="https://www.eiu.com/landing/risk_analysis">Country Risk Ratings</a> and the World Bank’s <a href="https://databank.worldbank.org/source/country-policy-and-institutional-assessment">Policy and Institutional Assessment</a>.</p>
<p>The index is focused on public-sector corruption – from misusing public institutions for private or political gain to outright fraud and bribery. Many of its sources also incorporate perceptions of broader corruption.</p>
<p>According to a 2018 <a href="https://openknowledge.worldbank.org/handle/10986/29162">World Bank</a> review of eight major corruption measures, this “composite methodology” makes the Corruption Perceptions Index the most valid measure of the magnitude of overall corruption in many countries. </p>
<h2>Calculating economic impacts</h2>
<p>To estimate the economic impact of Australia’s falling score, I’ve drawn on the extensive body of economic research done over the past 30 years quantifying the impact of corruption on economic growth. </p>
<p>A useful overview of these many studies came from a 2011 meta-analysis for the United Kingdom government by University of London economists <a href="https://eppi.ioe.ac.uk/cms/Default.aspx?tabid=3108">Mehmet Ugur and Nandini Dasgupta</a>. </p>
<p>They sorted through more than 1,000 papers, analysing 115 of those studies in detail to calculate concrete numbers for the relationship between corruption index scores and economic performance.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/equality-our-secret-weapon-to-fight-corruption-102431">Equality: our secret weapon to fight corruption</a>
</strong>
</em>
</p>
<hr>
<p>They created a six-point corruption scale from “0” (very corrupt) to “6”. </p>
<p>Every one-point change on this six-point scale, they calculated, increased or reduced per capita economic growth by, on average, 0.86% a year. </p>
<p>Each one-point change on their scale equals a 17-point change on the Corruption Perceptions Index 100-point scale, meaning Australia’s 12-point decline suggests 0.6% less income per capita.</p>
<h2>What this means for Australia</h2>
<p>It suggests that if Australia had the same Corruption Perceptions Index score as in 2012, therefore, it would enjoy GDP per capita growth of 2.2% over the next few years instead of Treasury’s forecast <a href="https://budget.gov.au/2021-22/content/myefo/index.htm">1.6%</a>. </p>
<p>In terms of jobs, the Treasury forecasts <a href="https://budget.gov.au/2021-22/content/myefo/index.htm">1.6%</a> annual growth between 2022 to 2025 – about an extra 200,000 jobs per year. An extra 0.5% would lift that growth by 60,000 jobs per year. </p>
<p>The calculations are necessarily rough. International averages don’t automatically translate to a specific nation’s circumstances. However, Ugur and Dasgupta’s study finds higher economic effects apply in wealthier countries, meaning applying the average effect to Australia might produce an underestimate.</p>
<p>The result is also broadly consistent with an International Monetary Fund study, <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Corruption-Costs-and-Mitigating-Strategies-43888">published in 2016</a> linking a 22-point improvement on the Corruption Perceptions Index to a tax revenue increase equal to 0.88% of GDP.</p>
<p>Applying this to Australia’s performance would suggest its 12-point decline is costing government revenue some 0.5% of GDP - that’s $10 billion - a year. </p>
<p>Perceptions of corruption do matter. These results suggest they go well beyond integrity and good governance. </p>
<p>Simply put, an effective integrity commission and other steps tackling corruption are both sensible economic management and good budget repair.</p><img src="https://counter.theconversation.com/content/176562/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Ward does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Increasing perceptions of corruption in Australia could be suppressing economic growth by as much as 0.6%Tony Ward, Fellow in Historical Studies, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1765382022-02-08T19:09:41Z2022-02-08T19:09:41ZWhy there’s no magic jobless rate to increase Australians’ wages<figure><img src="https://images.theconversation.com/files/444934/original/file-20220208-25-s4n5th.jpg?ixlib=rb-1.1.0&rect=0%2C535%2C5410%2C2782&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>With the <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">official unemployment rate</a> now 4.2% – the lowest since 2008 – Prime Minister Scott Morrison has <a href="https://www.afr.com/politics/federal/morrison-sets-unemployment-goal-not-seen-for-50-years-20220201-p59ss9">predicted</a> a rate “with a 3 in front of it this year”. The Reserve Bank of Australia <a href="https://www.rba.gov.au/publications/smp/2022/feb/pdf/statement-on-monetary-policy-2022-02.pdf">agrees</a>, forecasting unemployment below 4% in coming months.</p>
<p>Many economists have been surprised at how quickly employment has rebounded from the effects of COVID-19. Now they are scratching their heads for another reason. </p>
<p>With unemployment so low, why aren’t wages growing more quickly?</p>
<h2>Real wages falling</h2>
<p>If something is in short supply, its price is supposed to rise. That’s according to conventional economics, which treats the price of labour (wages) much like any other commodity, from pork bellies to rapid antigen tests. </p>
<p>But there is little sign of that happening. </p>
<p>Since 2013, growth in nominal wages (not accounting for inflation) has been weaker than any time since the 1930s, with the <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release#data-download">average annual rate of 2.1%</a> growth half the typical rate of earlier years. </p>
<p>After grinding to a halt during the lockdowns, wage growth has rebounded – but only to those anaemic pre-pandemic rates (up just 2.2% in the past 12 months). Nominal wages are now lagging well behind consumer prices. Real wages (accounting for inflation) are therefore falling – the opposite of what free-market theory predicts when unemployment is low.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/unemployment-below-3-is-possible-if-australia-budgets-for-it-176025">Unemployment below 3% is possible – if Australia budgets for it</a>
</strong>
</em>
</p>
<hr>
<p>This outcome puzzles those economists who focus on market forces to explain income distribution. But it’s not surprising to those who consider a broader array of structural, institutional and social determinants of wages. </p>
<p>Unemployment may matter to wage trends, although not necessarily for the same reasons assumed by market-focused theories. But many other factors – including minimum wages, collective bargaining, the award system, and even politics and culture – also explain who gets paid what.</p>
<h2>Market-based ideas driving policy</h2>
<p>A simple market-based understanding of wages has guided the policy stance of the government and the RBA for a generation. </p>
<p>Both still ascribe, for example, to the concept of a “non-accelerating inflation rate of unemployment” (or NAIRU).</p>
<hr>
<p><strong>The Non-Accelerating Inflation Rate of Unemployment (NAIRU)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The non-accelerating inflation rate of unemployment (NAIRU)." src="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=483&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=483&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=483&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=607&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=607&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=607&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">RBA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>This refers the lowest unemployment rate achievable without causing wages to grow and inflation to rise. Both keep changing their estimates of its precise level, with the treasury’s <a href="https://treasury.gov.au/sites/default/files/2021-04/p2021-164397_estimatingthenairuinaustralia.pdf">most recent calculations</a> putting it at 4.5% to 5% in the years before the pandemic. </p>
<p>One reason the estimates shift is because the concept is impossible to measure. Many countries have abandoned this <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/3111/attachments/original/1573673492/Tolerate_Unemployment_but_Blame_the_Unemployed_Formatted.pdf?1573673492">widely criticised</a> concept. Yet it still underpins Australia’s fiscal and monetary policies. </p>
<p>A gentler approach acknowledges wages will accelerate gradually, instead of taking off suddenly, as unemployment approaches the estimated non-accelerating inflation rate of unemployment (NAIRU). </p>
<p>This relationship is expressed graphically in what is called the Phillips Curve. </p>
<hr>
<p><strong>The Phillips Curve</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The Phillips Curve" src="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=530&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=530&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=530&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=665&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=665&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=665&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/education/resources/explainers/nairu.html?utm_source=twitter&utm_medium=social&utm_content=nairu&utm_campaign=explainer">RBA</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>As unemployment falls, wage growth should gradually gain steam. That allows policy makers, especially the RBA, to try to guide the economy to a “sweet spot” on the Phillips Curve: with wage growth consistent with the RBA’s inflation target. </p>
<h2>Nice in theory, not in reality</h2>
<p>Unfortunately for both theories, the expected automatic relationship between unemployment and wages isn’t visible in the real world. Australia’s unemployment rate has fallen through successive estimates of the NAIRU (first 6%, then 5%, now 4%) with no sign of inflationary take-off.</p>
<p>The Phillips Curve is also morphing, changing both its vertical position and its shape. The accompanying figure plots unemployment versus the annual rate of growth in wages. </p>
<hr>
<p><strong>Wage growth and unemployment, 2000-2021</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="alt" src="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=433&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=433&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=433&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=544&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=544&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=544&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS wage price index and labour force data.</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Before 2013 only a weak relationship was visible between wages and unemployment. Since 2013 the curve has shifted down and flattened, with hardly any discernable connection between unemployment and wages.</p>
<h2>Other factors at play</h2>
<p>The only way to explain this seeming anomaly is to look at the broader, structural determinants of wages. </p>
<p>No economy simply sets the market loose to determine how much people get paid. </p>
<p>Regulations, institutions and processes mediate the distribution of income across classes, occupations and jobs. They can be used to create a more equitable distribution. Or they can be used to reward certain groups and suppress the incomes of others. Either way, it is institutions and policies – shaped fundamentally by politics and power – that determine how the economic pie gets divided.</p>
<p>Circumstances now provide a telling insight into how important those institutions are – and how dramatically they have changed. The accompanying table compares labour market outcomes and institutional parameters today, to those that prevailed the last time unemployment was below 4%. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Unemployment and wages indicators, 1972 vs 2022." src="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Fifty years ago nominal wages were growing robustly, at more than 10%. Inflation was high (close to 6%) but real wages still rose. Now inflation is half that rate, yet wages are falling behind prices.</p>
<p>This is due to a night-and-day contrast between labour-market institutions then and now. </p>
<p>The minimum wage now is much lower relative to the average. The awards system has been restructured to serve only as a safety net, rather than leading improvements in wages and conditions. Unions and collective bargaining have been decimated, with strikes almost non-existent. Workers’ bargaining power has been further eroded by the spread of part-time work, casual jobs and other non-standard employment, including digital gigs.</p>
<p>Fifty years ago workers had institutional power to win decent wage increases – even when unemployment was relatively high. That power has been steadily and deliberately stripped away through privatisation, suppression of union activity and liberalisation of insecure employment.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/top-economists-expect-rba-to-hold-rates-low-in-2022-as-real-wages-fall-175054">Top economists expect RBA to hold rates low in 2022 as real wages fall</a>
</strong>
</em>
</p>
<hr>
<p>Higher wages would strengthen household finances, support consumer spending and achieve a fairer distribution of income. But there’s no magic unemployment rate that will deliver that outcome. </p>
<p>If we want higher wages, we must win them through deliberate wage-boosting policies.</p><img src="https://counter.theconversation.com/content/176538/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>If we want higher wages, we must win them through deliberate wage-boosting policies.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1756182022-01-26T19:07:38Z2022-01-26T19:07:38ZAn unemployment rate below 4% is possible. But for how long?<p>It would be nice to think Australia’s low unemployment rate – now 4.2%, the lowest since August 2008 – is here to stay.</p>
<p>We’ve been waiting a long time to see this. In the decade before the onset of COVID-19 the jobless rate hardly moved. In March 2010 it was 5.4%. Ten years later, in March 2020, it was 5.3%. In between the lowest the rate was to 4.9% - and then just for two months. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing Australia's unemployment rate from December 2011 to December 2021." src="https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>In 2021 the unemployment rate was under 5% in six out of 12 months.</p>
<p>A lower rate of unemployment makes us all better off. It means more of the nation’s productive resources are being put to work, and higher living standards for those extra people employed and their families.</p>
<p>Even with the effects of Omicron, there are good reasons to think the rate will fall further in 2022. </p>
<p>The bigger question is whether whatever lower rate we achieve can be sustained once all the effects of the pandemic are behind us. This will depend largely on how macroeconomic policy makers handle the transition. </p>
<h2>High job vacancies</h2>
<p>One reason to expect the rate to go lower in 2022 is recent employment growth – 365,000 in November, and 65,000 in December. With that pace of growth it’s likely there’s more to come, especially given the high level of job vacancies. </p>
<p>Had the vacancy rate at the end of 2021 been the same as before COVID-19, an extra 158,000 jobs would have been filled. Just half of those jobs going to the unemployed would have seen the December unemployment rate drop to 3.6%. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-has-record-job-vacancies-but-dont-expect-higher-wages-172146">Australia has record job vacancies, but don't expect higher wages</a>
</strong>
</em>
</p>
<hr>
<p>Uncertainties make it difficult to predict exactly how much lower the jobless rate could go, or for how long. That will depend on macroeconomic policy – the reason the unemployment rate is where it is now.</p>
<h2>Government action has been crucial</h2>
<p>The <a href="https://drive.google.com/file/d/1I0R68BHr9ozS8doqtqi53yuM4YArEgGp/view?usp=sharing">big reason</a> the unemployment rate has fallen is due to growth in the proportion of the population who are employed accelerating since mid-2021.</p>
<p>When you think about what changed in 2021 to make this happen, government policy has to be the main explanation.</p>
<p>Government spending on COVID-related programs has added considerably to gross domestic product, increasing employment. </p>
<p>Closed borders may also have added to GDP – by as much as 1.25% per annum, according to economist Saul Eslake – due to Australians redirecting spending from international travel to domestic consumption.</p>
<p>What follows is that a low rate of unemployment will depend on the policy makers being willing to continue to provide stimulus to economic activity.</p>
<h2>An opposing force</h2>
<p>One headwind blowing the unemployment rate higher may be faster growth in the labour-force participation rate, which measures the proportion of the population who want to work. </p>
<p>Before COVID-19 the participation rate had been increasing rapidly. With COVID-19 it slowed, due to reasons such as parents having to withdraw from the labour force to care for children.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="ABS labour force participatin rate, December 2021." src="https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Should growth in the labour-force participation rate return to its previous pace once the impact of COVID-19 recedes, the rate of unemployment will be pushed back up.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/just-4-5-during-lockdowns-the-unemployment-rate-is-now-meaningless-167805">Just 4.5% during lockdowns? The unemployment rate is now meaningless</a>
</strong>
</em>
</p>
<hr>
<h2>Statistics for young workers</h2>
<p>Issues to do with measurement may also be temporarily making the rate of unemployment artificially low. </p>
<p>The strongest employment growth from March 2020 to December 2021 was for those aged 15 to 24 years. </p>
<p>Younger workers were hardest hit during the 2020 downturns associated with COVID-19. But by December 2021 the proportion of young people employed was 3.5 percentage points higher than in March 2020. This compares with the employment rate being 1.2 percentage points higher than before the pandemic for those aged 25-64 years, and 0.9 percentage points higher for those 65 years and older. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Percentage change in proportion of people employed, by age, since March 2020." src="https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>The strength of employment growth for the young – given all we know about the increasing difficulties they faced in the labour market in the 2010s – is surprising.</p>
<p>My guess is it may in part be due to young Australian permanent residents taking over jobs previously held by international students and working holiday makers, and being more likely to be captured in official surveys. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-economy-cant-guarantee-a-job-it-can-guarantee-a-liveable-income-for-other-work-153444">The economy can't guarantee a job. It can guarantee a liveable income for other work</a>
</strong>
</em>
</p>
<hr>
<p>In that case, total employment of the young may not actually have changed by much, but the statistics show it increasing because of who is doing the work.</p>
<p>Before COVID-19 we could reasonably have expected the rate of unemployment today to be 5%. Instead, we’re at 4.2% and looking ahead in 2022 to further falls in unemployment. What lies beyond that is less certain.</p><img src="https://counter.theconversation.com/content/175618/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeff Borland receives funding from the Australian Research Council. He is a Board member of the Committee for Economic Development of Australia.</span></em></p>There is enough momentum for Australia’s unemployment rate to go lower than 4.2% in 2022. Keeping it low is another matter.Jeff Borland, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1746062022-01-11T19:17:57Z2022-01-11T19:17:57ZHealthy humans drive the economy: we’re now witnessing one of the worst public policy failures in Australia’s history<figure><img src="https://images.theconversation.com/files/440159/original/file-20220111-19-ho52kh.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7348%2C4891&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shutterstock</span> </figcaption></figure><p>Australians are getting a stark reminder about how value is actually created in an economy, and how supply chains truly work.</p>
<p>Ask chief executives where value comes from and they will credit their own smart decisions that inflate shareholder wealth. Ask logistics experts how supply chains work and they will wax eloquent about ports, terminals and trucks. Politicians, meanwhile, highlight nebulous intangibles like “investor confidence” – enhanced, presumably, by their own steady hands on the tiller.</p>
<p>The reality of value-added production and supply is much more human than all of this. It is people who are the driving force behind production, distribution and supply.</p>
<p>Labour – human beings getting out of bed and going to work, using their brains and brawn to produce actual goods and services – is the only thing that adds value to the “free gifts” we harvest from nature. It’s the only thing that puts food on supermarket shelves, cares for sick people and teaches our children.</p>
<p>Even the technology used to enhance workers’ productivity – or sometimes even replace them – is ultimately the culmination of other human beings doing their jobs. The glorious complexity of the whole economy boils down to human beings, using raw materials extracted and tools built by other human beings, working to produce goods and services.</p>
<h2>A narrow, distorted economic lens</h2>
<p>The economy doesn’t work if people can’t work. So the first economic priority during a pandemic must be to keep people healthy enough to keep working, producing, delivering and buying. </p>
<p>That some political and business leaders have, from the outset of COVID-19, consistently downplayed the economic costs of mass illness, reflects a narrow, distorted economic lens. We’re now seeing the result – one of the worst public policy failures in Australia’s history. </p>
<p>The Omicron variant is tearing through Australia’s workforce, from <a href="https://www.smh.com.au/national/nsw/nurses-are-in-despair-as-staffing-shortages-bite-in-nsw-hospitals-20220103-p59ljc.html?fbclid=IwAR3obDpqk7Muu2xpOA1H7MH2D2TuxPIzMQrL_NKk2QoKHA2LriWoRcmRO8o">health care</a> and <a href="https://www.smh.com.au/national/nsw/hundreds-of-nsw-childcare-centres-shut-due-to-covid-20220104-p59ls4.html">child care</a>, to <a href="https://www.edenmagnet.com.au/story/7575635/knock-on-effects-through-supply-chain-despite-eased-covid-rules-for-workers/">agriculture</a> and <a href="https://www.freshplaza.com/article/9388733/omicron-has-now-put-us-in-a-desperate-situation-in-regards-to-workers-shortage-and-shipping-issues/">manufacturing</a>, to <a href="https://www.abc.net.au/news/2022-01-06/supermarket-shortage-supply-chain-truck-driver-covid/100741392">transportation and logistics</a>, to <a href="https://www.smh.com.au/national/surf-lifesavers-and-students-fill-paramedic-shifts-as-omicron-spreads-20220108-p59mrq.html">emergency services</a>. </p>
<p>The result is an unprecedented, and preventable, economic catastrophe. This catastrophe was visited upon us by leaders – NSW Premier Dom Perrotet and Prime Minister Scott Morrison in particular – on the grounds they were protecting the economy. Like a Mafia kingpin extorting money, this is the kind of “protection” that can kill you.</p>
<h2>Effect as bad as lockdowns</h2>
<p>On a typical day in normal times, between <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/nov-2021/EM2b.xlsx">3% and 4% of employed Australians</a> miss work due to their own illness. Multiple reports from NSW indicate up to half of workers are now absent due to COVID: because they contracted it, were exposed to it, or must care for someone (like children barred from child care) because of it. With infections still spreading, this will get worse in the days ahead.</p>
<p>Staffing shortages have left hospitals in chaos, supermarket shelves empty, supply chains paralysed. ANZ Bank data, for example, shows <a href="https://twitter.com/ANZ_Research/status/1479284711151345666?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet">economic activity in Sydney</a> has fallen to a level lower than the worst lockdowns. </p>
<hr>
<p><strong>Spending in Sydney and Melbourne now near lockdown conditions</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="ANZ Bank data shows spending in Sydney and Melbourne has fallen to levels typical of lockdown conditions." src="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=449&fit=crop&dpr=1 754w, https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=449&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/440169/original/file-20220111-17-1jp9jpu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=449&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ANZ Research</span></span>
</figcaption>
</figure>
<hr>
<p>If relaxing health restrictions in December (as Omicron was already spreading) was motivated by a desire to boost the economy, this is an own-goal for the history books.</p>
<h2>Relaxing isolation rules</h2>
<p>Now the response to Omicron ravaging labour supply is to relax isolation requirements for workers who have contracted, or been exposed to, COVID-19.</p>
<p>The first step was to shift the goalposts on “test, trace, isolate and quarantine” arrangements by redefining “close contact”. </p>
<p>On December 29 <a href="https://www.pm.gov.au/media/press-conference-kirribilli-nsw-10">the Prime Minister said</a> it was important to move to a new definition “that enables Australia to keep moving, for people to get on with their lives”. The next day National Cabinet <a href="https://www.pm.gov.au/media/national-cabinet-statement-12">approved a definition</a> such that only individuals having spent at least four hours indoors with a COVID-infected person needed to isolate.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-still-not-too-late-to-fix-the-rapid-antigen-testing-debacle-why-the-national-cabinet-decision-is-wrong-and-must-be-reversed-174391">It's still not too late to fix the rapid antigen testing debacle. Why the national cabinet decision is wrong and must be reversed</a>
</strong>
</em>
</p>
<hr>
<p>Australians certainly want supply chains to keep moving. That won’t happen by simply pretending someone with three hours and 59 minutes of face-to-face indoor contact with Omicron is safe. Putting asymptomatic but exposed and potentially infected people back to work will only accelerate the spread.</p>
<p>The second step has been to reduce the isolation period for those who do pass this tougher “close contact” test. At its December 30 meeting National Cabinet agreed to a standard isolation period of seven days (ten days in South Australia), <a href="https://www1.racgp.org.au/newsgp/gp-opinion/so-you-have-been-asked-to-self-isolate-or-quaranti">down from 14 days</a>.</p>
<p>For “critical workers” in essential services including food logistics, the NSW and Queensland governments <a href="https://www.news.com.au/finance/work/at-work/isolation-rules-relaxed-for-critical-workers-as-nsw-battles-supply-chain-issues/news-story/2b97ef133f6c3caff9dcd5bc548cc58b">have gone even further</a>, allowing employers to call them back to work so long as they are asymptomatic. </p>
<h2>Snatching defeat from the jaws of victory</h2>
<p>This follows a <a href="https://www.cdc.gov/media/releases/2021/s1227-isolation-quarantine-guidance.html">US precedent</a>, despite <a href="https://www.nejm.org/doi/pdf/10.1056/NEJMc2102507?articleTools=true">scientific evidence</a> indicating contagion commonly lasts longer than 5 days.</p>
<p>Employers will use this change to pressure exposed and even sick workers to return to work, risking their own health, colleagues, customers, and inevitably spreading the virus further.</p>
<p>Copying US COVID protocols only guarantees US-style infection rates. In fact, since 5 January, Australia’s seven-day rolling average infections per million <a href="https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2021-03-30..latest&facet=none&pickerSort=desc&pickerMetric=total_cases_per_million&hideControls=true&Metric=Confirmed+cases&Interval=7-day+rolling+average&Relative+to+Population=true&Color+by+test+positivity=false&country=USA%7EAUS">now exceed that of the US</a>. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Daily new confirmed COVID-19 cases per million people, Australia compared to United States." src="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=532&fit=crop&dpr=1 754w, https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=532&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/440179/original/file-20220111-21-zzh3bj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=532&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2021-03-30..latest&facet=none&pickerSort=desc&pickerMetric=total_cases_per_million&hideControls=true&Metric=Confirmed+cases&Interval=7-day+rolling+average&Relative+to+Population=true&Color+by+test+positivity=false&country=USA~AUS">Our Wold in Data</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>From one of the best COVID responses in the world to one of the worst, Australia has snatched defeat from the jaws of victory.</p>
<h2>It’s not too late to limit the carnage</h2>
<p>The idea that health considerations <a href="https://www.theguardian.com/australia-news/2021/oct/07/its-an-economic-crisis-too-in-nsw-what-a-difference-a-new-premier-makes">had to be balanced with economic interests</a> was always a false dichotomy. A healthy economy requires healthy workers and healthy consumers. </p>
<p>The Omicron surge has created an economic emergency that will be difficult to endure. </p>
<p>But it’s not too late to limit further avoidable contagion. Infection prevention practices (including masks, capacity limits, prohibitions on group indoor activities, PPE and distancing in workplaces, and free and accessible rapid tests) must be restored and enforced.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/from-covid-control-to-chaos-what-now-for-australia-two-pathways-lie-before-us-174325">From COVID control to chaos – what now for Australia? Two pathways lie before us</a>
</strong>
</em>
</p>
<hr>
<p>Income supports for workers who stay home must be restored. Staffing strategies need to emphasise steady, secure jobs, rather than outsourcing and gig arrangements which have facilitated contagion.</p>
<p>Above all, our policy makers need to remember the economy is composed of human beings, and refocus their attention on keeping people healthy. Protecting people is the only thing that can protect the economy.</p><img src="https://counter.theconversation.com/content/174606/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>Some political and business leaders have, from the outset of COVID-19, downplayed the economic costs of mass illness. We’re now seeing the result.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.