Stephen Koukoulas (aka “the Kouk”) has posted a good article in The Guardian sounding the alarm on Australia’s deteriorating labour market, which shows no signs of improving without concerted policy action:
The debacle of the Australian Bureau of Statistics (ABS) being unable to publish reliable monthly seasonally adjusted labour force data does not hide the trend of deterioration in unemployment over the past couple of years…
There are no signs in other indicators that suggest this will be the peak in unemployment and there are plenty of unfolding trends that point to the unemployment rate going higher still in the months ahead.
What is most disconcerting at the moment is a lack of policy resolve to do anything about it…
At the moment, the economy is in the early stages of a disinflationary funk. That means real GDP growth is likely to be sluggish – perhaps 2.25% to 2.75% on average for the next year or two. The freefall in the terms of trade with commodity prices cascading lower will erode national income, and for many it will be one of the toughest economic environments since the recession of the early 1990s.
The domestic economy is simply not providing sufficient offset to these negative external influences…
This means that the unemployment rate is all but certain to remain high…
And now with the labour market so weak that real wages are falling, there is the prospect of a vicious cycle unfolding where consumers cannot increase their consumption due to falling real wages and deteriorating job prospects, those poor job prospects in turn dampen wages which in turn dampens spending and so on…
For the government, a recasting of policies that take account of the labour market would also seem appropriate. Perhaps it could tighten the tax expenditures associated with superannuation and negative gearing. The revenue here would affect a section of the economy that is not income and spending constrained, yet could provide the money needed to underpin growth and employment elsewhere in the economy.
It’s good to see the Kouk raising these issues, which unfortunately have been ignored by most of the mainstream media.
Unemployment continues to trend up, with Australia’s youth particularly hard-hit (see next chart).
Underemployment is also tracking at record highs (see next chart).
Which, taken together, shows just how much slack there is in Australia’s labour market, particularly amongst Australia’s youth (see next chart).
The Kouk’s solutions of cutting back on Australia’s expensive and poorly targeted tax expenditures, such as superannuation concessions and negative gearing, are sound, although they alone do not go far enough.
Essentially, Australia needs fundamental tax reform that shifts the tax burden away from inefficient sources (i.e. taxes on labour and profits) to efficient sources, such as consumption, land and resources.
The country also needs policies to facilitate a lower Australian dollar – such as macro-prudential curbs on high risk mortgage lending and restrictions on the banks’ offshore borrowings – along with comprehensive reform of competition policy, to facilitate greater competition (innovation) and break-down abuses of market power and cartel-like behaviour amongst Australian firms and industries.
Policy makers first need to acknowledge that Australia’s current ponzi-based economic model of never-ending house price (private debt) escalation and population growth is unsustainable, and needs to be replaced by real and sustainable drivers of growth and employment.
Changing the tax system so that it no longer rewards speculation over genuine productive activity is a good place to start.
