Top economists say cutting immigration is no way to boost wages


Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National UniversityAustralia’s top economists have overwhelmingly rejected cuts to either permanent or temporary migration as a means of restoring lost wage growth.

The 56 leading economists polled by the Economic Society and The Conversation include a former head of the Fair Pay Commission and a former expert member of the Fair Work Commission’s minimum wage panel.

Among the experts, selected by their peers, are specialists in economic modelling and the economics of labour markets from both the private and public sectors.

All but five rejected cuts in temporary migration as a means of boosting wage growth. All but three rejected cuts in permanent migration.

The results put the economists at odds with Reserve Bank Governor Philip Lowe, who last month drew a link between temporary migration and weak wage growth saying employers had been using overseas hires to fill gaps that would have been filled by locals, diluting “upward pressure on wages in these hotspots”. He said this might have spilled over to rest of the labour market.

Cutting temporary and cutting permanent migration were the first two of ten options for boosting wage growth presented to the panel of economists. The panel rated them third last and second last. Only “holding back growth in female and older worker participation” was marked down more.

Each economist was asked to pick three of the ten options. The most popular, picked by 78.2%, was measures to boost productivity growth. The next most popular, picked by 50.9%, was measures to boost business investment.



Michael Keane of The University of NSW said the idea that population growth and increased labour supply were constraining wage growth was “so naive as to not really be worthy of comment”.

Consultant Rana Roy said only a “cultivated amnesia” could ignore the near-uninterrupted growth in real wages in US, industrialised Europe and Australia amid record inbound immigration in the decades after the second world war.

Gabriela D’Souza of the Committee for Economic Development of Australia said the idea owed much to a “one dimensional view of the world” that took account of only the direct impact of immigrants on particular wages and not the impact of their demand for goods and services on a broader range of wages.

Dozens of studies had identified the overall impact as “near zero”.

Productivity ‘almost everything’

Robert Breunig of the Australian National University said immigrants appeared to add to productivity rather than detract from it, meaning slowing down immigration could slow down rather than add to productivity and growth.

Three quarters of the panel nominated productivity growth as the most important precondition for higher wages growth, endorsing the conclusion of Nobel Prize winning economist Paul Krugman that “productivity isn’t everything, but in the long run it is almost everything.”

Krugman famously added that a country’s ability to improve its standard of living
over time depended “almost entirely on its ability to raise its output
per worker”.


Wages growth is way below the Reserve Bank’s +3% target

Total hourly rates of pay excluding bonuses, seasonally adjusted. Change from corresponding quarter of previous year.
ABS Wage Price Index

Ian Harper, a former head of the Howard government’s Fair Pay Commission and a current member of the Reserve Bank board, said that without productivity growth, any boost in wages growth that was delivered was likely to be nominal — matched by inflation — rather than real, delivering higher living standards.

One of the best tools for lifting production per worker was business investment.

One of the five economists who thought immigration hurt wages growth, Macquarie University’s Geoffrey Kingston, said it seemed to do it by thinning investment per worker. In the 1980s, under Prime Minister Bob Hawke, increased immigration helped push down real wages for five years in a row.

Several of those surveyed said wage growth needed investment in more than machines. Griffith University’s Fabrizio Carmignani said what also mattered was investment in “human capital” via education and research and development.




Read more:
Exclusive. Top economists back unemployment rate beginning with ‘4’


Adrian Blundell-Wignall, a former division chief at the Organisation for Economic Co-operation and Development, said reforming the education system and getting rid of elitism had to be part of the plan.

“That the best predictor of how well you do at school is how rich your parents are and where they went to school is a national tragedy,” he said. “The entitlement and club economy that comes with this permeates politics, business, and who gets the best jobs after completing school.”

Former Rudd and Gillard government minister Craig Emerson said while measures to boost productivity growth were essential, even if implemented soon, they would take years to flow through into higher wages.

It’s how you divide the pie

Saul Eslake said whether or not higher productivity growth actually delivered higher real wages would depend on the division of the fruits of that growth between wages and profits.

John Quiggin said nearly every reform of Australia’s industrial relations system since 1975 had acted to reduce the bargaining power of unions. All ought to be reviewed with a “presumption in favour of repeal”.

Mala Raghavan of the University of Tasmania said wage growth had become uneven. Wages for a small number of managers had soared while wages for others — especially casual workers — had barely moved.




Read more:
Top economists want JobSeeker boosted $100+ per week, tied to wages


The Australian National University’s Emily Lancsar saw a triple benefit from reforming the industrial relations system to boost union bargaining power: it would increase wages directly, it would put money that would have been paid out as profits in the hands of people likely to spend it, and the increases would flow through to workers not on awards and not represented by unions.

Labour market specialist Jeff Borland added that there was a case for strengthening the ability of unions to obtain gender pay equity in female-dominated occupations.

None of those surveyed were optimistic about the prospect of quickly lifting wages growth. The Reserve Bank said in July it wasn’t planning to lift interest rates until aggregate growth exceeded 3%.


Detailed responses:

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Now that Australia’s inflation rate is 3.8%, is it time to worry?


ABS/Shutterstock

John Hawkins, University of CanberraSuddenly, Australia’s annual inflation rate is 3.8%, having jumped from 1.1% for the twelve months to March.

The June quarter jump follows a jump in the United States to 5.4% and a jump in New Zealand to 3.3%, sparking a debate between leading pundits such as former US treasury secretary Larry Summers and Nobel Prize winner Paul Krugman about whether high inflation is on the way back, after years of playing dead.


Annual inflation, Australia


Australian Bureau of Statistics

The best advice is not to worry. Most of the jump is only temporary, the result of several one-offs.

As the Reserve Bank told us back in May, a main cause is that in the depths of COVID lockdowns last year, the government heavily subsidised child care, pushing the effective price to near zero.

With removal of those subsidies the price has bounced back. This is a one-off — it can’t be repeated.

Reasons to not worry

Petrol prices also collapsed as cities locked down last year, and have since returned to pre-COVID levels. This is another one-off that won’t be repeated.

There were also big jumps in the prices of some fruit and some vegetables due to a shortage of pickers and heavy rainfall. They are also best seen as one-offs.

The “trimmed mean” measure of so-called underlying inflation used by the Reserve Bank to see through transient influences was only 1.6%. It’s a better guide to what is going on.

Reserve Bank Governor Lowe.

This also true in other countries. The Bank for International Settlements concluded this month that a common thread in recent increases in inflation was that they were “likely to be temporary”.

The Reserve Bank is expecting inflation back below 2% by the end of the year. The bank forecasts consumer prices to rise by 1.5% through 2022.

Most economists broadly agree. The average forecast from The Conversation’s panel was an inflation rate of 2.1% in 2022.

What about the traders in financial markets, whose pay depends on trying to guess inflation right?

The traders’ average forecast can be derived from what they will pay for inflation-indexed compared to non-indexed bonds.

Over the next ten years, they expect inflation to average 2%.

But isn’t too much money being printed?

Yes, there have indeed been such claims, often by people trying to talk up the value of cryptocurrencies through internet memes.

It is true that as the Reserve Bank sought to steady the economy last year, there was a period of rapid monetary growth. In times of uncertainty, people tend to want to hoard some money.

But the same thing happened during the global financial crisis in 2008. It didn’t end up leading to high inflation then. It is unlikely to do so now.

Concerns have also been expressed that central banks have been buying too many government bonds — so-called “quantitative easing”. These fears were expressed internationally during the global financial crisis. They proved unfounded.

What else might push up inflation?

There are some longer-run structural changes. After the global financial crisis, the effective supply of workers in the global economy grew due to demographic factors and the re-engagement of China.

Some of the demographic factors may be reversing, but the effect will be gradual.

It is also true that many economies, including Australia’s, rebounded from last year’s COVID lockdowns faster than expected. This has led some commentators to talk about overheating.




Read more:
What’s in the CPI and what does it actually measure?


But now the emergence of the more contagious Delta strain has seen a new round of lockdowns. The Australian economy is likely to contract in the September quarter, making our recovery look W-shaped rather than V-shaped as it did.


The Conversation, June 2 2021

A big rise in inflation is unlikely unless wages grow strongly. There is no sign of this. Australia’s wage price index is climbing by just 1.5%.

But what if the experts are wrong?

Contrary to some claims, the Reserve Bank has not promised to keep interest rates on hold at 0.1% until 2024.

As the bank’s governor has made clear, if inflation accelerates into its target band it will raise interest rates earlier.

Since the Reserve Bank introduced its 2-3% target, inflation has averaged 2.4%. There is no reason to think it won’t continue to act to keep it moderate.

But if I still fear inflation, what should I do?

You should look for a good “inflation hedge”, an asset that will increase in price with inflation.

It is possible to buy indexed government bonds.

Rents and dividends also tend to rise with inflation, meaning houses and shares have proved reasonable inflation hedges in the past.

Assets with no returns, such as gold and cryptocurrencies, are less reliable. The price of Bitcoin has more than halved in two of the past seven years, so beware.The Conversation

John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society and NATSEM, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

View from The Hill: Labor wouldn’t disturb tax cuts, negative gearing in ‘small target’ strategy


Michelle Grattan, University of CanberraAfter making itself a mega target in 2019, Labor has confirmed it will be a small one in 2022 by promising an Albanese government would keep the 2024 income tax cuts and not disturb negative gearing and capital gains tax.

This decision essentially completes the “de-Shortening” of Labor’s controversial policy pitch. The plan to scrap franking credit cash refunds, which saw a Coalition scare campaign at the last election, was ditched some time ago.

With the Coalition having limited scope to make big promises, and the opposition determined to confine itself to a fairly narrow agenda, the election seems likely to be centrally about the exit from COVID.

A special virtual caucus meeting was held on Monday to approve a shadow cabinet decision on the tax measures. Caucus members were only given a few minutes to read the material.

Some in Labor will be unhappy at the decision, especially as the opposition has consistently criticised the tax cuts as favouring people on higher incomes. The decision also means Labor has constrained the amount of money it will have to spend on promises.

But with polls showing Prime Minister Scott Morrison in a trough, Labor has become more optimistic about its election prospects and opposition leader Anthony Albanese is determined to ditch any baggage in pursuit of a win.




Read more:
Election surprise. Negative gearing isn’t a rort — but something else is


A focus on the PM’s COVID response

The government will counter with Labor’s past statements on the issues.

At the caucus meeting, shadow Treasurer Jim Chalmers, facing questioning about the likely attitude of Labor party members to the package of tax decisions, said parts of the political spectrum “would not applaud” it. He said it had been an “on balance” decision.

Albanese emphasised Labor’s unity, contrasting it with disunity in the Liberal party, mentioning Campbell Newman, a former Liberal National Party Queensland premier, quitting the party.

The opposition leader told his troops Labor was “cutting through” with its message that Morrison had two jobs – the vaccine rollout and putting in place an effective quarantine system.

Albanese and Chalmers said in a statement that with its decisions, Labor was providing certainty to working families.

When it comes to the economy, the next election will be about the prime minister’s dangerous and costly failures to manage the pandemic.

His failures on vaccines and quarantines have caused lockdowns 18 months into this pandemic, and those lockdowns are causing billions of dollars in damage to the economy.

The cost of the stage three tax cuts is about $17 billion in their first year, and $130 billion over ten years. They come in from mid-2024.

Under the changes, the 32.5% tax rate goes down to 30%, and the 37% rate is scrapped. From July 1, 2024, people earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

Chalmers told a news conference:

an Albanese Labor government will deliver the same legislated tax relief for more than nine million Australians who earn $45,000 a year or more as the Morrison government.

As the tax cuts are already legislated, a Labor government would not necessarily have been able to get their repeal through the Senate anyway.




Read more:
Other Australians earn nothing like what you think. If you’re on $59,538, you’re typical


HIA welcomes Labor stance on negative gearing

At the last election, Labor proposed removing negative gearing for people who bought existing properties and cutting the capital gains discount from 50% to 25%.

Assistant Treasurer Michael Sukkar said Labor couldn’t be trusted on negative gearing.

In a cynical move that is unashamedly motivated by the pursuit of power, Anthony Albanese is now trying to convince voters that Labor doesn’t want to abolish negative gearing or raise taxes on capital gains.

However, if we are to take the Labor Party at their word, ending negative gearing is an issue that senior Labor figures are deeply committed to.

Sukkar backed up his argument with a bunch of quotes from Labor figures, including Albanese and Chalmers, supporting the old policy.

But the Housing Industry Association welcomed the Labor announcement on negative gearing and capital gains tax, saying it “will provide certainty for the housing industry and for Australians that are looking to invest or rent”.

Albanese also announced Labor would introduce a bill into the Senate “to improve the transparency and accountability of ministerial decisions with grant programs”.

This is to highlight the revelations about the political rorting in the government’s car park program at the last election.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

View from The Hill: Morrison shakes money tree again in bid to avoid second recession


BlueSnap/Shutterstock

Michelle Grattan, University of CanberraAs NSW on Wednesday extended its lockdown for another month and the federal government shelled out more money, it was as if we were back in 2020 and Victoria’s long incarceration.

Thankfully, one big difference is that the Sydney outbreak, where the latest figure is 177 new locally acquired cases, hasn’t had (at least so far) a high death rate.

Some deaths are occurring, including a woman in her 30s, but the nursing homes now seem substantially protected, although there remains concern immunisation of aged care workers has a long way to go.

In its latest funding, the federal government has resisted calls for the reinstatement of JobKeeper, but there is help for both individuals and businesses.

Scott Morrison announced the maximum COVID disaster payment for workers who lose hours would rise from $600 to a maximum of $750 (the original JobKeeper level). There will also be $200 for people on welfare payments who lose more than eight hours work.

The Prime Minister argued JobKeeper did not have the flexibility now required.

JobKeeper was “not the right solution for the problems we have now,” he told his news conference (held at The Lodge, where he’s isolating, with reporters clutching umbrellas).



“What we are doing now is faster [paying the money direct to workers rather than through the employers], it’s more effective, it’s more targeted, it’s getting help where it is needed
far more quickly.

“We’re not dealing with a pandemic outbreak across
the whole country.

“What we need now is the focused effort on where the need is right now. And so it can be turned on and off to the extent that we have outbreaks.

“JobKeeper was a great scheme. But you don’t play last year’s grand final this year. You deal with this year’s challenges.”

The cost of boosting the disaster payment and the welfare top up will depend on how long the NSW lockdown lasts – and what other (if any) future lockdowns occur there or elsewhere.



Under an expanded package for businesses hit by the NSW restrictions, more businesses will be covered, with the maximum turnover threshold increased from $50 million to $250 million.

Those eligible – including not-for-profits – will be able to receive $1,500 to $100,000 a week (compared to $1500 to $10,000 previously).

The government says up to an extra 1,900 businesses employing about 300,000 people could benefit from the widening of eligibility.

The total cost of the NSW package – funded on a 50-50 split with the state – is $600 million a week, up from $500 million in the previous package.

Morrison said Commonwealth support to NSW amounted to $750 million a week.

There is also a new joint federal-state package (funded on a 50-50 basis) to give Victorian small and medium businesses extra support to recover from the recent lockdown. This will total an extra $400 million.



On the vaccine front the NSW government, having failed to get more Pfizer from other states, has decided to divert some Pfizer doses from regional areas to inoculate Year 12 students in the COVID hot spots.

These students will be able to return to face to face learning on August 16.

We’ve yet to see how the reallocation decision will go down in the regions.

Morrison was upbeat in predicting Australia’s economy would bounce back strongly from the lockdown, as it did after the earlier dive. It’s crystal ball territory. The September quarter is set to be negative. The December quarter result is unforeseeable.




Read more:
Now that Australia’s inflation rate is 3.8%, is it time to worry?


Treasurer Josh Frydenberg said what happens in the December quarter, “will largely depend on how successful NSW is in getting on top of this virus.”

The government is trying to judge what it will take to keep the economy out of a second recession, which would likely kill many businesses that just managed to hold on through the earlier one.

A second recession would inflict a major hit on the government politically, just before an election that must be held by May.




Read more:
View from The Hill: Labor wouldn’t disturb tax cuts, negative gearing in ‘small target’ strategy


A poll done by Utting Research in NSW on Monday underlines the message of other polls: COVID currently is taking serious skin off the PM. Only 37% were satisfied with the job he is doing handling the COVID crisis; 51% were dissatisfied.

Morrison said on Wednesday: “I would expect by Christmas we will be seeing a very different Australia to what we’re seeing now”.

He knows if we don’t, he could be in dire straits.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

When COVID is behind us, Australians are going to have to pay more tax


Australian Tax Office.

Peter Martin, Crawford School of Public Policy, Australian National UniversityThe biggest unstated message from the intergenerational report released during the lull between lockdowns is that we will need more tax.

Not now. At the moment it’s a matter of throwing everything we’ve got at getting on top of the COVID outbreaks and worrying about how to (and the extent to which we will need to) pay for it later.

But when the economy is healthy again, taxes are going to have to rise, big time.

That the intergenerational report doesn’t say so explicitly might be because the government is sticking with its arbitrary and implausible guarantee that tax collections will never climb above 23.9% of GDP, which is the average between the introduction of the goods and services tax and the global financial crisis.

Or it might be because what’s needed sits oddly with legislated high-end tax cuts likely to cost $17 billion per year from 2024-25.

Among the drivers of increased government spending identified by the report is spending on health, at present 4.6% of gross domestic product, and on the report’s projections set to climb to 6.2% over the next 40 years.

We’ll want better health

To fund that alone the government will need to collect 6% more tax in 2061 than had spending on health stayed where it was as a proportion of GDP.

Perhaps surprisingly, most of the extra spending on health won’t be a direct result of the population ageing. It’ll be because health technologies are getting better and becoming much, much more expensive (à la the COVID vaccines). And because incomes are rising.

Rising incomes, the report explains, are the largest driver of government spending on health internationally.

That’s because for some things, including the provision of hospitals, private spending can’t cut it, no matter how well off you are.

Australia’s richest man needed hospitals as much as anyone.
AP

After billionaire Kerry Packer suffered a massive heart attack while playing polo in 1990, he was rushed to Sydney’s Liverpool Hospital.

When the ANU election survey began in 1990, 54% of Australians surveyed regarded health as “extremely important” in determining their vote. It’s now 70%. In 1990 11% regarded health as “not very important”. It’s now just 2%.

The intergenerational report has spending on aged care climbing from 1.2% to 2.1% of GDP, which by itself means the tax take will have to be 4% higher than otherwise, but it was prepared ahead of the government’s final response to the aged care royal commission.

The interim response had 14 (mostly expensive) recommendations subject to “further consideration”.

The National Disability Insurance Scheme already accounts for one in 20 tax dollars collected and is set to overtake Medicare.

The report says the government’s response to the royal commission into disability care presently underway is likely to place “additional pressure” on costs.

We’ll need to spend more than projected

None of this extra spending is bad if it delivers value for money, and it’s what the public wants. But it is hard to reconcile with official projections in the report showing government spending climbing only 2.5% per year in real terms over the next 40 years, compared to 3.4% per year in the past 40.




Read more:
Intergenerational report to show Australia older, smaller, in debt


The report gets there in part by an outrageous sleight of hand. It says JobSeeker and other payments will become tiny as a proportion of GDP because they will only climb with inflation (which is typically low) rather than wage growth or GDP growth (which is typically higher, and lines up with how the pension grows).

A moment’s reflection would show that if that actually happened for 40 years — which is what the treasury’s report assumes — JobSeeker would fall from 70% of the single age pension to a hard-to-justify 40%.


JobSeeker and age pension as projected in intergenerational report

Payment for a single person, dollars per fortnight. JobSeeker indexed to IGR inflation projections, pension indexed to IGR wage projections.


We know it won’t happen because it hasn’t happened.

JobSeeker was boosted this year after only 20 years rather than 40 in order to make sure that sort of thing wouldn’t happen.

And we know there’s nothing to stop an intergenerational report using more realistic assumptions.

The 2015 report, released at a time when the Abbott government planned to adjust the pension in line with the more miserly JobSeeker formula, relaxed the assumption after 13 years because if it left it in place the pension would slide untenably below community expectations.

We’ll easily be able to afford more tax

There’s nothing wrong with paying more tax if it’s for things we want, like better health care, better aged care, better disability care and benefits we can live on.

The intergenerational report has government spending climbing by four percentage points of GDP between now and 2061. But it also has real GDP per person almost doubling, climbing 80%.

Even if that’s an overestimate and GDP per person grows by, say, 50%, and the need for tax grows by more than four points, we’ll easily be able to afford the extra tax, and we’ll want what that tax will buy. Expectations climb with income.

The present government will be long gone by the time the tax to GDP ratio reaches its “cap” of 23.9% of GDP (which the report expects in 2035).

Mathias Cormann has moved to the OECD where average tax rates are high.
Ian Langsdon/EPA

The finance minister who came up with the cap, Mathias Cormann, is now head of the Organisation for Economic Co-operation and Development, in which the average tax take is 34% of GDP.

An obvious place to look for the tax is high-income senior citizens, at present enjoying tax-free super, refundable franking credits and special tax offsets.

Grattan Institute calculations suggest an older household earning $100,000 pays less than half the tax of a working-age household on the same amount.

Like the households of less well-off seniors, those households are highly likely to use the services tax provides.

To say we’ll need more tax is not to say the government needs to fund all of its spending with tax.

It is projecting budget deficits for the next 40 years. Budgets have been in deficit for all but a few of the past 100 years.

But it will need to cover much of it with tax to keep the economy in check. If we want what tax provides, we’ll be prepared to pay it.The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Coronavirus Update: Australia


Coronavirus Update: Global


Vital Signs: amid the lockdown gloom, Australia’s jobless rate hits decade low of 4.9%


Richard Holden, UNSWIn other circumstances Treasurer Josh Frydenberg might be dancing a jig.

But the pall of the Greater Sydney lockdown, which has now spilled over to Melbourne declaring its fifth lockdown, meant there was no room for smiling yesterday about the latest jobs figures, showing Australia’s unemployment rate in June fell below 5% for the first time in a decade.

The labour force survey data from Australian Bureau of Statistics shows 22,000 fewer Australians were unemployed last month compared to May. This pushed the unemployment rate down to an eye-catching (if not yet eye-popping) 4.9%.

Next month’s figures, of course, are unlikely to be so rosy. But these numbers still enable us to understand the progress the Australian economy is making with a number of important issues predating the COVID crisis.



CC BY-SA

Importantly, the lower unemployment rate wasn’t due to a reduction in labour-force participation — sometimes known as the “giving up effect”, when folks just stop looking for work because they don’t expect to find a job. The participation rate was steady at 66.2%. In fact, the number of employed persons increased by 29,100 to 13,154,200.

There was even good news for younger Australians, with the youth unemployment rate down by 0.5 percentage points to 10.2%. This reflected a strong recovery from the pandemic, being 6.1 percentage points lower than a year ago in June 2020.

Total hours worked

The one statistic I always focus on is the total hours worked number. This is because the headline unemployment rate, as critics always point out, doesn’t tell us to what extent people are getting enough work.

On this measure there was slightly less good news. Total hours worked in June were down 1.8%, by 33.4 million hours to 1,781 million hours; and that’s seasonally adjusted, so its not just some “winter” thing.


Monthly hours worked in all jobs, seasonally adjusted


ABS Labour Force Survey, June 2021., CC BY-SA

Slow wages growth

In 2019 one could best characterise the Australian economy as barely growing in per-capita terms. Wages growth was stubbornly low, while unemployment and underemployment were unacceptably high.

Having recognised this — too late, mind you, but at least eventually — the Reserve Bank cut interest rates from 1.50% to 0.75% in an effort to get wages up, unemployment down, and inflation back into the central bank’s 2-3% target zone. Inflation has been outside its target band for the entirety of Philip Lowe’s governorship, which began in September 2016.




Read more:
Vital Signs: Why has growth slowed globally? It has something to do with technology


The pandemic pushed the RBA to drive the cash rate close to zero, and also buy government bonds to push down longer-term interest rates.

By looking at where unemployment, underemployment and wages growth stand relative to 2019 levels, we learn something about Australia’s pandemic recovery.

In doing so, we should not lose sight of fact the economy in general — and the labour market in particular — were not in good shape pre-COVID, and policies to address those issues have long been needed.

Edging closer to where we need to be

So, how’s that going? In some sense, pretty well.

June’s 4.9% unemployment rate is the lowest since June 2011. Getting down to something with a “4” in front of it edges Australia closer to reducing the slack in the labour market sufficiently to push wages up.

But the task is certainly not complete.

The aggressive monetary policy being used by the RBA and the “Frydenberg pivot” to aggressive fiscal policy at this year’s federal budget are both aimed at reducing unemployment and hence increasing wages.

However, no one really knows how low unemployment needs to get in Australia to getting wages moving again in earnest. The RBA’s official position is maybe 4.5%. Lowe has said it may well be a fair bit lower.

The smart path, arguably, is “let’s find out” — the central bank should keep using monetary policy and the treasury keep using fiscal policy until we see real wages growth at a sustained level. My own guess is that means getting the unemployment rate down to just below 4%.




Read more:
Vital Signs: we’ll never cut unemployment to 0%, but less than 4% should be our goal


Reigniting an immigration debate

The backdrop for these improvements in the labour market is a closed international border. This is likely to become a hot debate — especially since Lowe fired the starter pistol last week by suggesting Australia’s historically high levels of immigration had been helping keep wages low.

Those were rather careless, or at least ill-advised, remarks from the central bank governor, contrary to solid academic evidence pointing the other way.

He may say more on this at a future date — perhaps after some discussion and reflection. But, as he is so fond of saying, “only time will tell”.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Intergenerational report to show Australia older, smaller and more in debt


Shutterstock

Peter Martin, Crawford School of Public Policy, Australian National UniversityAustralia will be smaller and older than previously expected in 40 years time after the first downward revision of official projections in an intergenerational report in 20 years.

The much lower projections in Monday’s fifth five-yearly intergenerational report will mean indefinite budget deficits with no surplus projected for 40 years, only 2.7 Australians of traditional working age for each Australian over 65 (down from four) and average annual economic growth of 2.6%, down from 3%.

“Intergenerational reports always deliver sobering news, that is their role,” Treasurer Josh Frydenberg will say launching the report Monday morning. “The economic impact of COVID-19 is not short lived.”

The report says the pandemic has slowed both Australia’s birth rate and inflow of migrants.

The 2015 intergenerational report projected an Australian population of almost 40 million by 2054-55. The 2021 update projects 38.8 million by 2060-61.

As a result in 2060-61, about 23% of the population is projected to be over 65, up from 16% at present and 13% in 2002.

Although in the future increased superannuation would take pressure off the age pension, superannuation attracts favourable tax treatment which cuts government revenue.

The combined total of age pension spending and superannuation tax concessions was projected to grow from around 4.5% of gross domestic product to 5% by 2061.

Health, aged care spending to soar

Real per person health spending is projected to more than double over the next 40 years, largely due to the costs of new health technologies.

By 2060-61 health is expected to be the largest component of government spending, eclipsing social security and accounting for 26% of all spending.

Aged care spending is projected to nearly double as a share of the economy, largely due to population ageing.




Read more:
No Barnaby, 2050 isn’t far away. The intergenerational report deals with 2061


Mr Frydenberg will say that even in the face of these demands the government remains committed to its promise to limit the tax take to 23.9% of GDP. Tax receipts are not expected to reach this level until 2035-36.

“Growing the economy is Australia’s pathway to budget repair, not austerity or higher taxes. This is why we remain committed to our tax to GDP cap, ensuring our COVID support is temporary and persuing productivity-enhancing reforms.”

Net debt is projected to peak at 40.9% of GDP in 2024-25, before falling to 28.2% in 2044-45 and then climbing again to 34.4% by 2060-61.

While Australia’s population will be smaller and older, and debt levels higher as a result of the pandemic, had the government not spent at unprecedented levels to support the economy a generation of Australians might have been condemned to long term unemployment, seriously damaging the budget longer-term.

Other projections have real GDP per person a measure of living standards, growing at an annual average of 1.5%, down from an earlier-projected 1.6%

The result will still be a near-doubling of real GDP per person, from $76,700 in today’s dollars to $140,900 in today’s dollars in 2060-61.

Behind that projection lies an assumed lift in annual labour productivity growth to 1.5%. In the decades before the pandemic, annual productivity growth had been averaging 1.2% and had slumped to 0.4% in the year during the pandemic?




Read more:
Why productivity growth stalled in 2005 (and isn’t about to improve)


The lift in productivity assisted by government policies that will help individuals and businesses “take advantage of new innovations and technologies” is expected to take ten years.

Not included in the extracts from Monday’s report released by the treasurer late Sunday are the closely-watched projections for net overseas migration and for spending on the national disability insurance scheme.The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia is building a billion-dollar arms export industry. This is how weapons can fall in the wrong hands


Megan Price, The University of QueenslandSince 2018, Australia has been seeking to become a top ten global defence exporter.

Its main exports are products and components that fit into broader global supply chains for weapons and weapons systems. For example, the government boasts there isn’t a single F-35 fighter jet production operation that doesn’t feature Australian-made components.

The government sees further export potential for products and components to be used in armoured vehicles, advanced radar systems, and patrol boats, as well.

While Australia hasn’t made much headway on its export ranking, it has enjoyed some impressive sales success. In the 2017-18 financial year, the estimated value of approved export permits was A$1.5 billion. By 2019-20, it had grown to nearly $5.5 billion.

Australia’s export goals are connected to a broader effort to resuscitate domestic manufacturing.

Considerable government funding is involved in this effort, including $1 billion recently allocated to the Sovereign Guided Weapons Enterprise for building missiles.

Where do Australian arms go?

Australia doesn’t provide data on which countries it exports arms to. It only maps the regions, and unhelpfully, it lumps the Middle East and Asia together.

We do know successive defence ministers have courted markets in the UAE and Saudi Arabia.

Heavily redacted documents obtained by the Guardian under a Freedom of Information request also indicate that in 2018-19, Australia issued 45 arms export permits to the UAE and 23 to Saudi Arabia.

Another 14 permits were approved for the countries from 2019-20.

These developments are significant, not least because the UAE and Saudis have both been embroiled in the Yemeni civil war for years, at times conducting their own indiscriminate air strikes.

The UN secretary-general anticipates 16 million Yemenis will go hungry this year because of the conflict, while 50,000 Yemenis are already starving to death.

Earlier this year, the Biden administration announced a freeze on “offensive” arms sales to Saudi Arabia and the UAE, citing the toll on civilians in the Yemeni war. Italy followed suit. Germany, too, halted weapons exports to the Saudis after the murder of journalist Jamal Khashoggi in 2018.

Advocacy groups in Australia have attempted to seize on this glimmer of momentum by calling for Australia to do the same.

When weapons end up in the wrong hands

The Australian government still claims its arms export industry operates under strict regulations:

In keeping with Australia’s national interests and international obligations, Defence facilitates the responsible export of military and dual-use goods and technologies from Australia.

Such claims are hardly new. If anything, they’re part of a long-standing Western tradition.

In the 1960s, the UN Security Council debated the merits of an arms embargo on South Africa. At the time, the French and British maintained their weapons sales were for “defensive purposes” and not “internal use”. South Africa built a terrifying internal security apparatus, making a mockery of the distinction.

The historical record shows that arms exports often show up precisely where they shouldn’t, causing untold civilian suffering. At times, they are even wielded against the immediate interests of the countries in which they were produced.

Britain’s many mistakes

Here, the British experience is illustrative (although we just as easily tell this story about any purported liberal democracy in the arms export business).

When Tony Blair’s Labour government came to office in 1997, it promised an “ethical” foreign policy. As part of this, Labour would never allow the sale of arms to regimes that might use them for internal repression. Or so they said.

The previous government had approved export licenses for the sale of Hawk jets to Indonesia’s Suharto regime. While Labour could have cancelled these licences, it didn’t do so until it was too late. A series of unedifying spectacles followed.

Hawk jets in Indonesia.
Hawk fighter jets fly in formation during an Indonesian military celebration.
SUZANNE PLUNKETT/AP

In 1999, Britain confirmed Indonesia had flown Hawk jets over Timor-Leste to intimidate local residents before the region’s independence referendum. Hawk jets were then used in 2003 to bomb Aceh province during a particularly brutal internal military campaign. British Scorpion tanks were also used.

These were by no means isolated incidents. In 2009, Britain conceded it was possible its weapons had been used in the Sri Lankan civil war in a manner contravening their export licences.

That same year, the foreign secretary also confirmed Israel had used British-made equipment to bombard Gaza.

Like Australia, Britain is currently exporting weapons to Saudi Arabia, though a court challenge is being brought to try to stop it. From 2013-17, it was the country’s second-biggest supplier, after the US.

While Britain recently announced it will halve its aid budget to Yemen, it will not stop supplying the Saudis with arms.

Today’s friend is tomorrow’s enemy

Arming foreign governments does not just pose an immediate risk to civilians. In a phenomenon known as “blowback”, it can undermine the interests of exporters.

In 2004, for example, the European Union lifted arms sanctions on Libya. And from 2005–09, EU member states cemented arms deals with the oil giant.

Muammar Gaddafi’s regime stored its new purchases in warehouses. Then, in 2011, Libya erupted into civil war and NATO enacted a “no-fly zone”. Many of the warehouses were looted and the weapons spilled into the hands of both government and rebel forces. This effectively turbo-charged a conflict that NATO was responsible for controlling.

A 2013 UN report said looted weapons had been smuggled to as many as 12 other countries in the region. They’ve fallen into the hands of foreign governments, separatists, warlords, and Islamic extremists. This is how arms deals can come back to bite exporters.

The arms industry has an array of potential drawbacks. There are questions about the economic efficiency of investing in defence at the expense of other sectors, and arms procurement is highly susceptible to corruption.

Even if our intentions are good and we behave transparently, we still cannot predict the future. The British Parliamentary Committee on Export Controls articulated this problem over a decade ago when discussing the Sri Lankan war:

The issue of Sri Lanka illustrates the difficulties faced by the government, and by those who, like us, scrutinise the licensing decisions made by government, in assessing how exports of arms might be used by the destination country at a future date, particularly if [the] political situation in the country at the time of the exports appears stable.

That should give us pause for thought.The Conversation

Megan Price, Sessional Lecturer, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.