HOUSE OF REPRESENTATIVES, 26 AUGUST 2020
We are now in the greatest economic downturn that Australia has seen since the Great Depression. Research from the Australian Treasury has revealed just how damaging this can be, particularly to young Australians. That research has looked at the so-called scarring effect, the long-term effect, of graduating in the teeth of a recession. I know this effect well, having finished high school in 1990 and seen some of my classmates who searched for work utterly unable to find it at that time.
We know now that there are 13 jobseekers for every job vacancy, so this problem is particularly acute.
The research conducted by Daniel Andrews of the Australian Treasury—now at the OECD—titled The career effect of labour market conditions of entry found that a person who enters the labour market for the first time during a recession is more likely to be unemployed and more likely to be unemployed for longer. When they do find a job—if they do—they are more likely to work at a low-productivity firm and are less likely to switch firms, thereby missing out on the wage gains that come from that. Their estimate is that somebody who enters the workforce in a year in which youth unemployment is five percentage points higher suffers an eight per cent hit to their earnings in the first year and a 3.5 per cent hit to their earnings in the fifth year. The scarring effect lasts a full decade.
We know that in Australia right now we are seeing significant adverse effects right across the labour market. We've seen a downturn in hours of some 20 per cent and the effective unemployment rate, the Treasurer tells us, will go to 13 per cent. The difference between those is JobKeeper, a wage subsidy scheme urged on the government, after they initially dragged their heels, by Labor. Labor recognises the value of wage subsidy schemes and maintaining the connection between employer and employee. Its value has been shown in Australia, as it has overseas.
But JobKeeper is far from perfect. Let's start with the finances. When it was announced in March, the federal government anticipated the program would cost $130 billion and support six million jobs. They continued to say in May that those figures were on track, until the $60 billion penny dropped and it was revealed that the program was in fact costing $70 billion and supporting only 3.5 million jobs. Rather than admitting the mistake, the Treasurer blamed employers for putting the wrong figure on the tax office form. After years of talking about the importance of personal responsibility to Liberals, the Treasurer was unable to take responsibility for the single biggest fiscal error in Australian history.
We have also seen problems in the way in which JobKeeper is designed. In other countries, wage subsidy schemes subsidise wages. In the past the government has touted the Single Touch Payroll scheme, which records how much employees earn and how much their hours are. But rather than rely on data from Single Touch Payroll, the government instead opted to supply a flat $750 a week. This means that someone working one day a week received a windfall but it also meant the coalition said that one million casuals who had been with their current employer for less than a year were ineligible, hitting hard many of those in the arts and hospitality sectors.
So, we have a JobKeeper scheme that is less well targeted than it could be if the government could make appropriate use of the data. I acknowledge in this my colleague the member for Gellibrand, who has done very important work on government data systems and ensuring that we get them right. It really matters here. Better targeting could allow JobKeeper to be extended to many more people. The government's deficient data systems are costing the budget and costing Australians in increased joblessness. Even from September the government isn't targeting precise wages. They are going to a more clumsy solution, a two-part payment, of $600 a week for those who work more than 20 hours a week and $375 a week for those working less than 20 hours a week.
We are also seeing too little transparency from the government. The Ardern government has put in place a website to which any New Zealander can log on and find every firm that is getting their equivalent of JobKeeper. But such an innovation doesn't exist in Australia. Even if you are a firm with a turnover of over $100 million, the taxpayer doesn't know whether or not you are getting JobKeeper. As Dean Paatsch from Ownership Matters has pointed out, that means that some firms are on track to receive JobKeeper and report an increase in profits. That is why some have dubbed it 'DividendKeeper', now that we have seen certain firms receiving taxpayer support and then paying that right back out to shareholders. It could be that that is paid out to executives as well. Dean Paatsch puts it mildly when he says, 'I don't think it was ever the intention of the government to subsidise executive salaries.' I would go a little further. If your firm is getting JobKeeper, the CEO should not be getting a bonus.
We've also seen in Australia too little data being published on the unemployment rate. We know that the government, on a regular basis, has detailed information on the number of people who are signing up for JobSeeker, formerly Newstart. These parallel numbers have been published in the United States since 1968, according to economist Saul Eslake. Every Thursday morning since 1968, the Americans get an immediate read on what unemployment is in their country. The same numbers are considered a state secret in Australia. The government is now talking about doing them fortnightly but is unwilling still to provide the same level of detailed data that Americans are able to access.
We're seeing significant issues in the labour market at the moment, and, as the crisis goes on, we're seeing the possibility that it will serve to exacerbate inequality. In a report for the Hamilton Project, economists David Autor and Elisabeth Reynolds discuss some of the ways in which the COVID crisis could make low-wage work more precarious. They point out that, the longer the shutdown goes on, the more likely it is that firms will begin to move to technology and supplant low-wage workers. They talk about this as 'automation forcing'. They point out that this may lead to firms having 'fewer workers per store, fewer security guards and more cameras, more automation in warehouses, and more machinery applied to nightly scrubbing of workplaces'. They say aerial drones may replace delivery people, and, in the meat-packing industry, adoption of robotic technology will speed up. All of this could have a lasting adverse impact on the number of low-wage jobs available.
The concentration of employment in large firms could be a result of a number of small business collapses. We know that the government's loan scheme hasn't helped to support lending in small business. Small business lending is down eight per cent this year, while large business lending is up. We know that there is a serious risk of cash-strapped small firms being bought up by larger companies—that we will see an increased trend in a market concentration which has already gone too far in Australia. That could well lead to the labour share declining: increasing inequality.
Urban de-densification could also mean that we see fewer jobs available for workers who support urbanisation—fewer opportunities in food services, cleaning, security, entertainment and transport. The rise of urbanisation has been a great driver of productivity. The cessation of this trend could cost jobs and may indeed have an adverse impact on productivity.
We also may see a shift towards working from home, which could have, again, impacts on inequality. James Stratton, an Australian undertaking his PhD at Harvard, estimates that 41 per cent of Australians have jobs that allow them to work from home. But high-wage employees are three times as likely to have a job that allows them to work from home. Firms also need to make sure they get working from home right. Research by Nicholas Bloom, quoted in Joshua Gans's regular update, points out:
For remote working to succeed, it is essential to have an effective performance review system … In firms which do not have effective employee appraisal systems management, I would caution against WFH
—working from home. Again, that may be a concern, given what we know about the differences in management capability across Australian firms.
We're also seeing very different impacts in this downturn, compared to previous downturns, from a gender perspective. Jeff Borland's Labour Market Snapshots show that previous recessions have largely been 'man-cessions': the fall in male employment has been more substantial than the fall in female employment. Early on in in this recession, the largest job losses were among women, who dominate in employment sectors such as hospitality.
We've seen from the government a failure to announce a long-term plan for JobSeeker.
Anglicare Australia have published a troubling report on the implications of the sudden phase-back in JobSeeker payments. They point out that for a couple on JobSeeker with two children only five per cent of rentals are currently affordable, but if the government goes ahead with its September cut then only 1.5 per cent of rentals will be affordable for a couple on JobSeeker.
There is also something that should be noted about this bill, which is that it expands the circumstances in which tax secrecy laws can be disregarded, expanding them from a threat to health, safety or public health to allowing the secrecy rules to be overridden to allow the administration of a law relating to coronavirus. I think that's a good thing, though I would point out that it stands in stark contrast to the coalition's approach to tax transparency in previous times. They have fought tooth and nail to keep information about the tax paid by Australia's largest firms secret.
There is much more that could be done. JobKeeper should be better targeted, which would mean it could be expanded to a broader range of Australians while serving the budget. Saul Eslake also suggests that it would be in the interests of the Australian economy to focus more policy attention on new businesses. He argues that on the basis that new businesses are more likely to be in industries that have good long-term prospects, more likely to create jobs, more likely to innovate, and more likely to be started by young people and to employ young people. He points out that tax preferences for new businesses would cost less than tax preferences for small businesses and that there's no way you can game the system. Businesses, like individuals, can't make themselves any younger, so there are no perverse incentives in subsidising new businesses.
The task is predominantly a fiscal one in Australia, as it is around the world, with monetary policy having reached the lower bound. But that's not to say that nothing could be done to improve the focus of the Reserve Bank on outcomes. As the deputy chair of the House of Representatives Standing Committee on Economics, in our last hearing I pressed the Reserve Bank governor and his staff on their three policy levers. It strikes me, looking at the Reserve Bank's projections, that it is now possible that inflation will be below the target band for the entire period of Governor Lowe's term as Reserve Bank governor, right through from 2016 to 2023. The consequence of that would be lower output for the economy and higher unemployment than if inflation were kept within the target band. You can see the impact of this through Australia's relatively high exchange rate, which reflects the relative conservatism of the Reserve Bank compared to other central banks. It surprises me that the Reserve Bank have not been willing to consider negative interest rates as other central banks have done, and I am concerned that, in not doing so, they may be putting bank profits ahead of jobs. The Reserve Bank's policy of yield curve control could be pursued more aggressively by targeting five-year maturities, and the term finance facility hasn't done enough to support small businesses, with, as I noted, lending to small firms having fallen eight per cent this year while lending to large firms has risen. So cutting the interest rate on the term finance facility could be beneficial.
In critiquing the Reserve Bank in this manner, I'm not alone. There have been many thoughtful commentators who have done so, including the Grattan Institute's Brendan Coates and Matt Cowgill; Stephen Kirchner of the US Studies Centre at the University of Sydney; Monash University's Isaac Gross; and the University of Melbourne's Chris Edmond and Bruce Preston.
It is important that all policy arms are working to aid recovery and to focus on the core priority for Australia: jobs, jobs, jobs.
Authorised by Paul Erickson, ALP, Canberra.