In this presentation to the ACTU Fund Managers Seminar ACTU Senior Research Officer Grant Belchamber considers the future economic climate.
The Australian economy
economic climate for the next few years – not trying to forecast the economic
weather for the next couple of weeks or months.
unemployment, interest rates, currency, etc? Where is Australia going in the
world economy? Useful to review briefly where we have come from …
The slides referred to in the text below can be downloaded as a PDF at the bottom of this page.
for five year periods on the preceding five years
delivered this payoff over past decade
extensive margin for growth. There is every chance of achieving more of this
good performance over coming years.
charts for jobs growth in the eighties and in the nineties. Indeed, Australia
outperformed the USA notwithstanding (1) we consistently look after minimum
wages here, they froze minimum wages for all of the eighties; and (2) the
recession in the early nineties was worse here than anywhere else.
been part-time in contrast to our eighties performance.
on unemployment in the early nineties; but have done much better than them this
time round (last few years, since turn of the century)
there, and Japan has flattened things out a bit for the Big 7 economies as a
faculties, the issue was how to deal with the demon stagflation. OPEC and the
Vietnam War are generally credited with bringing it upon us. A lot of quackery
emerged in response to it, including monetarism and economic fundamentalism,
that rules were better than discretion for monetary authorities, that policy
could affect the real economy only by being capricious, you know the themes
targetting’. It would be quite wrong to describe this as a new quackery,
but the new orthodoxy is already facing its own challenges.
– Today the demon is deflation – a monster whose previous incarnation was almost eighty years ago. Once it gets a hold of your economy, it’s hard to shake it off.
– Japan has been mired in it for a decade and still seems stuck.
– Alan Greenspan has been pushing all the knobs and pulling all the levers for the past two years to keep the threat at bay in the US, and it may be that the effort has been successful.
stretch of low inflation.
– First, the awakening dragon of the Chinese economy [might wrap India in this bundle too] and the low-cost mass-production that will emanate from there.
– Second, the continuing steady (even galloping) insinuation of Information and Communications technology into our lives and its adoption in every corner of our economy.
inflation targeting would rather have a bit too much inflation than not enough.
Today, rates in the range 0% to 1% for any stretch of time might well produce
more cold sweat and nightmares for these chaps than outcomes in the 4% to 5%
by a similar magnitude on the downside.
reserves of policy discretion, should deflation threaten to take hold here. As
yet, it doesn’t.
the GST, official forecasts were for Australian inflation to fall below 1.5% in
Sep quarter 2001, and to stay at or around that level thereafter.
Treasurer and the RBA Governor that Australian inflation would imminently fall
to the mid-point of the RBA target range.
around the 3% mark since the turn of the century. This does not seem to be
alarming the RBA or anyone else. Alan Greenspan does not have an overt or
official inflation target. It is a fair bet he would like to have the
RBA’s problem of an ambient rate around 3% or more, and would not be
inclined to raise official US rates for anything less.
domestic inflation than the sluggards (if that is a word). Yesterday’s
CPI result for the March quarter was the lowest quarterly result for 4 years,
though December’s result was the highest for 8 years (excluding GST
balance sheets in good shape, business focussed on world economy, public sector
accounts as tight as any in the OECD, labour demand strong and
the next few years, something around the top of the RBA target range for some
time yet. Housing prices make the RBA job that much trickier. All up, we are
probably, now, right at the bottom of the interest rate trough, and if not then
we are very close to it.
inflation gap between us and them to close over the year or two ahead through
higher US inflation. Expect Europe to remain dead-flat boring economically but a
nice place to visit.
some degree of Japanese economic recovery too. Similarly for the Asian Tigers,
though a surging China will constrain their export-led growth performance to be
back with the pack much more than has been the case in the past couple of
and raw materials, of top shelf services, of high-tech niche items – to
post sustained healthy rates of economic growth for the foreseeable
policy foul-ups and incompetence of the highest order at the highest levels of
corporate and political Australia to stymie achievement of plodding economic
bit of creativity and clear directions and strong leadership, prospects are for
outcomes much better than this.
is in the provision of quality infrastructure. Not just the physical
infrastructure – efficient and effective roads and bridges and ports and
transport hubs and utilities – but the social and the natural
infrastructure too. The universities and schools, the hospitals and primary
health systems, the sewers, the public transport, the arts precincts, the
national parks and the biodiversity.
markets would see the private sector look after all this, don’t you worry
about that. The role for government was to remove the roadblocks and let the
have a role in removing roadblocks, but they have a vital road building role and
fundamentalism is the precept that public debt is always and everywhere a bad
thing. Apparently this view does not burden the Japanese or US administrations,
but it has taken hold with our federal government and among many state
governments in this country. So we see PPP schemes and other funny-money
arrangements whose purpose is to deliver infrastructure off-budget. Usually
this comes at an inflated cost to the community.
Development Board under the Chairmanship of Mr Robert Champion de Crespigny has
recently produced a ‘Framework for Economic Development in South
Australia’ (available on-line) which takes issue with this view. This is
what the Board said: …quote …
made by the EDB, including this one about the zero net borrowing
borrow for capital expenditure not for recurrent, and should aim to balance
their budgets after payment of debt interest, and central governments should
stick to a similar rule over the course of the cycle.
quality public services and service any additional debt taken on to build
infrastructure, it has to assure the requisite revenues to fund it
standards. If Australia had the average tax to GDP ratio of the OECD countries,
there would be an extra $50 billion a year flowing into consolidated revenue to
pay for these things.
a low tax country, but the gap between us and the rest of the OECD has widened
over the past 15 yrs.
corporate tax rates are fraught for all sorts of reasons, but our company tax
regime is in line with or lighter than those applying in other OECD
burden on higher paid employees in Australia is relatively low. This chart is
for 1998. Since then the GST package has delivered seriously big tax cuts for
Australian income tax is adjacent to the OECD average. Note that ‘average
production workers’ in this OECD series earn around AWE; around two-thirds
of all wage and salary earners receive wages equal to or less than this amount.
The GST package delivered little by way of income tax cuts for this
the range from the minimum wage up to AWE, but the GST package provided peanuts
for them. For low paid full-time workers in particular, the bracket creep
screws have really tightened on their incomings over the past decade and the GST
has put new screws on their outgoings.
infrastructure for growth, we must think about efficiency and effectiveness, but
in all this there is simply no escaping questions of distribution.
The contemporary Australian labour force
fairly centrally controlled, and that it was possible, through the Industrial
Relations Commission, to give effect to agreements between the ACTU and the
federal Government relating to tax, wage increases and public
fell in the period 1986-1991, although this was compensated for through tax
cuts, the introduction of Medicare, superannuation and significant benefits for
low income households.
enterprise bargaining in the nineties this degree of central control has gone,
possibly for ever, and collective bargaining has become the main method for
achieving wage increases, particularly for union members. This has resulted in
rising real wages since that time.
amongst full-timers and jobs growth heavily weighted amongst
past 5 years or so we have managed to achieve modest increases in minimum wages
through the national wage case processes.
down’ theory of distribution has been put to the test in this country and
been found wanting. We have had GDP growth averaging around 4% and profits
bumping along the ceiling but we are seeing declining fairness in distribution
to the workforce and amongst workers.
rise in income inequality over the second half of the 1990s”. Incomes
rose only 1% in real terms for low income households over the period 1997-1999
to 1999-2000, while real increases of 4% and 6% were recorded for middle and
high income households respectively over the same period.
also had a root and branch overhaul of the award system, and it shows up in the
data. Labour productivity growth has increased significantly.
productivity gains to the ‘factors’ responsible for generating them, think
again. Most of the productivity gains come from the most award dependent
industry sectors – including wholesale and retail trade, accomodation
cafes and restaurants
competitiveness of Australian output, we’ve got it, we’ve had it for
15 years, there is no sign the Australian economy is about to lose it.
share of profits in national income is up around its historical ceiling and the
wages share is down around its historical floor
the US has seen over recent years. There is no shortage of investable resources
for corporates, investment expectations and outcomes are good, confidence is
negotiated with unions, has played a part in this.
workers, and ununionised, casual and part-time, unskilled workers. The change
in the structure of the workforce in the past 20 years is enormous and,
incidentally, is responsible for much of the decline in union
conducted for us by ACIRRT and available for them at the registration
– casual employment increased from 16% in 1984 to 27% in 2002: this means that one in four employees has no entitlement to paid sick leave or holidays
– part-time employment increased from 18% in 1984 to 29% in 2002
– permanent full-time employment fell from 74% in 1988 to 61% in 2002
– between 1990 and 1995 the proportion of large workplaces (more than 500 employees) using labour hire workers increased from 16% to 55%
yesterday’s Household Income and Income Distribution release for 2000-01.
Michael Keating has had a look at it too. Much of the increase in inequality
derives from the pattern of jobs growth we have had over the past 5 – 10
Borland, Gregory and Sheehan – other than managers and professionals, the net
increase in jobs in the 1990s consisted entirely of part time and casual
reflecting both faster jobs growth and also faster rates of salary increase at
the top. These two factors combined to generate real hourly average
earnings increases for males in the top decile of the distribution, of 53%
(2001 dollars) between 1989 and 2001
much slower or nonexistent, depending how you measure it. For low paid
full-time workers, real minimum wages have risen slightly since 1997. Most of
the employment growth, however, has been in part-time and casual jobs. Even
though many of these are second family incomes, the fact is that they do not
provide a living wage.
– an estimated 18% of the workforce live below recognised poverty lines
– 70% of low wage employees are of prime age (25 to 54 years)
– the majority of low wage women are working full time
– women accounted for 3/4s of all the new jobs in low paying occupations from 1985 to 2001
and casual employment means less money going into super, and less coming out
from it – people are not only low paid in their working lives but in their
investment. Is it necessarily a race to the bottom, this society we have? Must
short-termism rule, with cost cutting for immediate gains fouling our social
What policy changes should there be?
The Congress to be held next month will discuss a range of policy initiatives we believe will address the key issues facing the nation and directed towards achieving fairness for all Australians in the context of an open, growing and dynamic economy.
We do not believe that economic development requires lower living standards, reduction in services to the public and shifts to low paid and insecure employment.
Nor do we believe that the way forward lies with some sort of resurgent Stalinist centralism.
We do think Australia needs a vibrant and competitive manufacturing sector to assure jobs, skills and export income in an economy with some breadth and balance. The collapse of exports of elaborately transformed manufactures (ETM’s) is a particular concern. The annual growth of ETM exports fell from more than 15% (1986 – 1996) to less than 7% (1995-96 to 2001 – 2002), leaving Australia with an ETM trade deficit of more than $60 billion. The need for a strategic industry policy has never been greater – particularly to encourage exports.
Industry and trade policy: We see great merit in greater co-operation between federal and state governments to develop strategic approaches to attract investment, promote trade, invest in infrastructure and develop our industries. There is a role here for:
and joint bidding;
a cost effective alternative to PPPs;
is low by international standards,
access to its trading partners’ markets, which ensures protection for
Australia’s national interest and which is not exploitative of developing
Tax policy initiatives include:
produce sufficient revenue to meet the economic and social needs of all
work incentives at the intersection of welfare and work. Most analyses are in
terms of effective marginal tax rates, pointing to the loss of additional income
to tax and withdrawal of social security benefit.
two young children get from finding work. When she finds full-time work
as a shop assistant on award rates, the family’s gross additional income
is $9.27 per hour. This is after loss of Job Search Allowance is withdrawn.
With tax taken out too, the family is better off to the tune of $6.30 per hour
worked, and she is working 38 hours per week in this example. No account is
taken here of the additional costs that attach to working, such as fares and
the family loses Family Tax Benefit B, as well as remnant JSA. In gross terms,
family income rises by $3.23 per additional hour worked. After tax, the
increase is $2.59 per hour. This is from a gross award wage rate of almost $13
per hour. Again, no account is taken here of the additional costs that attach
to working, nor of the cost of childcare that might be necessitated.
there is clearly great scope for improvement and we see this as a critical area
for policy improvement.
Other tax policy initiatives to be pursued include:
personal tax rates;
expenditure directed towards the Medicare system;
per year, with FBT applied to shares or options packages valued at more than
$1000 per year;
community has shown it is prepared to accept taxes where it knows and approves
the purpose eg the levies to fund Medicare, the gun buy back and our
intervention in East Timor.
Our wages policy is centred around encouraging collective bargaining, while seeking to ensure that this is underpinned by an award system which provides a fair go for those who are unable to bargain with regular moderate increases in minimum wages.
In relation to the future of work, our policies are aimed at obtaining flexibility for employees as well as employers, through:
period of regular employment;
in the European Union
they are employed directly or though a labour high company.
Presented at the Fund Managers Seminar by ACTU Research Officer, Grant Belchamber.