Peter Downes of Outlook Economics supports the federal government’s decision to prioritise jobs and wages growth in the Budget on 11 May. He says the target of reducing the jobless rate to less than 5% will not be easy, but he contends that it should be done sooner than later.
Deloitte Access Economics has estimated that up to 200,000 new jobs would need to be created in order to bring the unemployment rate below 5%. Chris Richardson of Deloitte agrees that delaying Budget repair until unemployment is “comfortably” below this level is the right policy.
From The AFR:
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“It won’t be easy to get the unemployment rate down into the fours, but the sooner you do it the better,” Mr Downes said.
“They’re going to need to get unemployment down and wage growth up to help improve the budget”…
“Lower unemployment and higher wages improves tax revenues and reduces spending on unemployment and other benefits,” Mr Downes said…
“The fastest and smartest way to repair the budget will be to avoid attempts at budget repair until unemployment is comfortably under 5 per cent,” Mr Richardson said.
This analysis is all well and good. However, the federal government has no hope of driving unemployment below 5%, nor driving up wage growth, if it persists with is plan to reboot immigration to pre-COVID levels via:
- Abolishing labour market testing requirements;
- Lowering costs and speeding up approval times for importing foreign workers;
- Expanding the skilled occupation list to include almost any role;
- Providing all ‘skilled’ visa holders with a clear pathway for transition to permanent residency; and
- Granting ‘skilled’ visa holders priority access to flights and hotel quarantine ahead of stranded Australians.
If the pre-COVID level of migration was restored, an extra 200,000 workers would enter the Australian labour market each and every year, driving up unemployment and putting downward pressure on wage growth (other things equal).
The only way to achieve a tight labour market is to avoid budget austerity and run a modest immigration program. Doing so will ensure that the increased demand across the economy translates into wage growth for workers.
Australians suffered a decade of stagnating real wage growth on the back of mass immigration, alongside declining quality of life. The government must not be allowed to repeat the same mistake again.
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