Treasurer Josh Frydenberg has signalled that further reducing the unemployment rate will be a priority in the federal government’s Budget on 11 May. He will state in pre-Budget speech on 29 April that both the Treasury and the Reserve Bank are now of the view that growth in wages and inflation will require the official unemployment rate to fall below 5%.
Frydenberg had indicated in September that the government would not focus on Budget repair until the nation’s jobless rate had fallen “comfortably” below 6%. Budget repair is now unlikely to be a priority for the government until at least 2022.
From The Australian:
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“We need to continue working hard to drive the unemployment rate lower. That is what (the May 11) budget will do,” he will say.
“We won’t be undertaking any sharp pivots towards ‘austerity’.
“We want more people in jobs and in better paying jobs. This is what our fiscal strategy is designed to achieve”…
The Treasurer on Thursday will quote new Treasury research suggesting unemployment would likely need to fall below 4.5 to 5 per cent before inflation and wages growth accelerated…
RBA governor Philip Lowe has suggested the jobless rate may need to drop even further to below 4 per cent.
Here’s a genuine question for Treasurer Josh Frydenberg: how will unemployment fall below 5%, and wage growth accelerate, if the federal government proceeds with its plan to rapidly reboot immigration to its pre-COVID level?
Because adding an extra 200,000 workers to the economy every year will necessarily drive up unemployment and lower wage growth.
Don’t take my word for it, here’s ANZ economist Daniel Gradwell:
“Part of the reason why unemployment has come down so much is surely because there aren’t as many people coming into the country looking for work”…
“If we had absorbed another 200,000 people over the last 12 months instead of actually losing people [overseas], then surely unemployment would be sitting higher that where it is”.
“And we know that we need to get the unemployment rate lower before we see some material improvement in wages growth”…
“It’s really hard to see wages picking up at 3 or 4 per cent per annum like they used to do in the past while we have, potentially, a really strong overseas migration intake coming through.”
Without easy access to foreign workers, we are already seeing Australian employers lift wages and increase training to fill positions. This explains why the business lobby is lobbying so feverishly to reboot immigration: it is an easy way to lower wage costs while expanding their customer base.
Driving down unemployment, and driving up wages, necessarily requires a reset in bargaining power between capital (employers) and labour (workers), which has gone badly awry:
This can only be achieved by turning off the migrant tap and allowing the labour market to tighten.