The Turnbull government is kidding itself when it claims the labour market is strong.

Tue, 15 May 2018  |  

This article first appeared n the Yahoo7 Finance web page at this link: https://au.finance.yahoo.com/news/cant-get-job-want-2-055935412.html 

-------------------------------------------------- 

The Turnbull government is kidding itself when it claims the labour market is strong.


The latest data show the unemployment rate at 5.5 per cent, which is little changed from when it took office in September 2013. And while employment was impressively strong during 2017, it has weakened in the last two months to register no net increase since January.

Indeed, in the March quarter of 2018, employment rose by just 36,000, the second weakest March quarter increase in employment since 2009 which was when the economy was dealing with the global recession.
What’s more, the bulk of the rise in employment over the prior 18 months or so merely reflects population growth, mainly from net immigration, and little more.

More evidence of the problems in the labour market is evident in the near record high level of underemployment – that is, the number of people who have a job but would prefer to work more hours. In February 2018, the underemployment rate was 8.3 per cent, little changed from the level of recent years. The 1.1 million people who are underemployed reflect a weak labour market from the perspective of their employers being unable to offer them more hours because their business (the economy) is simply not strong enough.

When looking at economic facts, context is important.

The underemployment rate has been above 8 per cent since August 2014. At the depths of the global financial crisis in 2008 to 2010, the underemployment rate peaked at 7.8 per cent, lower where it is today, and never before in history has the underemployment rate been above that level.

Conditions now are clearly weak.

With the unemployment rate stuck at 5.5 per cent in concert with the underemployment rate entrenched above 8 per cent, there is no surprise that annual wages growth is mired near record lows around 2 per cent. Despite these concerning aspects of the labour market, the Prime Minister Malcom Turnbull and Treasurer Scott Morrison are going to frame their election campaign on economic management and jobs.

The jobs numbers are talked up at every opportunity by government ministers, with rare references to the unemployment rate and record low wages growth.

This is a risky strategy for many reasons, not least because the labour market is softening and the track record of the Coalition on the labour market as it approaches its 5 year anniversary in office, is at best problematic.

Since the Coalition was swept to office in September 2013, the unemployment rate has never been below 5.4 per cent. In contrast, in the almost 6 years when the previous Labor government was in office, the unemployment rate was below 5.4 per cent for 48 months. Never once was the underemployment rate above 8 per cent when Labor were in power, where is appears entrenched under the Coalition.

In terms of wages, the annual increase labour price index has been at or below 2.5 per cent since the December quarter 2014. Never once during the previous Labor government did annual wages growth fall below 2.5 per cent and in fact, the average annual increase from the end of 2007 to the end of 2013 was a respectable 3.6 per cent. Little wonder the current wage, unemployment and underemployment dynamics are undermining confidence in the economy and the government.

The recent budget assumes the unemployment rate will not fall below 5 per cent. This is a reflection of poor economic policy as can been seen in the contrast of many other industralised countries which have unemployment rates around 4 to 4.5 per cent and even lower.

Even a 5 per cent unemployment rate will do little to encourage wages growth to recover to 3.5 to 4 per cent, where it should be when the workforce is fully employed. The economic case for some targeted and immediate infrastructure spending, in concert with greater funding for education, skills and training, would seem an essential foundation to get unemployment and underemployment lower over the medium term.

Unlike what we saw in the budget, tax changes that skew greater take home pay to low and middle income earners, which can be revenue neutral if carefully framed, would also see a relatively quick boost to national spending and economic activity and this would help skew the unemployment rate lower.

Company and income tax cuts that are phased in over many years will not help much, if at all, to repair the labour market. Unfortunately, the government thinks the labour market is in good shape and the budget did little to deliver a material reduction in unemployment and higher wages. That is likely to be a political problem as the election draws near.

comments powered by Disqus

THE LATEST FROM THE KOUK

Get ready for a February budget

Wed, 15 Aug 2018

This article first appeared on the Yahoo 7 Finance web site at this link: https://au.finance.yahoo.com/news/heres-need-get-ready-early-2019-budget-010743625.html 

---------------------------------------------- 

Get ready for a February budget

 An early budget is the likely scenario given the Federal election is set to be held in May 2019. The budget, which in modern times is usually delivered by the government on the second Tuesday in May, cannot be handed down during the election campaign which will be running hot if Prime Minister Turnbull sticks to his word and holds the election in May.

To allow the government to deliver its budget before the election is called, the most likely time for it will be in the period from mid-February through to early March.

With the constraint of the election timing, this timeframe for the budget would allow the government to ramp up its economic rhetoric and no doubt engage in a bit of a voter friendly strategy in an effort to gain some political momentum into the election campaign. This timing also means that soon after voters return to work and the real world after the summer holidays, they will be bombarded with budget news which, if the government is smart, will be portrayed as ‘good news’ and ‘vote for us’ as it struggles to remain competitive with the Labor Party.

How the way you pay for stuff is fixing the budget

Mon, 06 Aug 2018

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/way-pay-stuff-fixing-budget-024912997.html 

 ----------------------------------------------

How the way you pay for stuff is fixing the budget

 Over the past few weeks, I have tried a little experiment with a few on my favourite small business retailers who, for what will be obvious reasons, will remain nameless.

For a range of smallish transactions of say $10 to $20, I deliberately made a bit of a fuss about paying with cash, rather than tapping with my card. Almost without exception, the proprietor, with a wink and nod, appreciated the use of cash, and passed a quick comment to the effect that “unfortunately, cash is rare these days”. I also noticed on a number of occasions the transaction was not rung up on the cash register, with the notes tucked into the cash drawer with no one other than me and the shop keeper aware of the transaction.

This got me thinking about an issue which has had me a little puzzled – the sharp improvement in the government’s budget position on the back of unexpectedly strong tax receipts. This extra tax revenue for the government appears to be an odd development given the sluggishness in the economy and consumer spending, and the ongoing weakness in inflation and wages, which over many decades have proven to be the driver of tax collections.

Rather than an unexpected pick-up in economic activity driving the revenue surge, it appears that technology, the decline in the use of cash and the greater use of cards accounts for the extra tax take.