House prices means interest rates do not need to rise much to inflict great costs

The more than a decade long period of the Reserve Bank going without raising interest rates looks set to end. Rising inflation and the unwinding of the pandemic restrictions and border closures means that the emergency cash rate of 0.1% will soon go up. But at the moment the market expects before the end of next year that it will rise to above 3%.

But while that may have been a neutral rate in the past, the Centre's Fiscal and Labour Market Policy Director Greg Jericho, notes in his column in Guardian Australia, recent surges in house prices means such a rise would place an extreme burdon on mortgage payers - one not conducive to an economy still in recovery. 

It took nearly 6 years during the mining boom for the RBA to raise the cash rate by 300 basis points; currently the market anticipates the same rise occurring in 17 months.

That would massively limit economic growth for little purpose at a time when wage rises remains below inflation, and rather unlikely to occur given the Reserve Bank's recent hesitancy to slow the economy until real wage again start rising.

 

 

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A slap-dash budget revealing a government with no idea why it is in power

This year's budget was transparently targeted towards the May election.  

But as Fiscal and Labour Market Policy Director, Greg Jericho notes in his Guardian Australia column, the slap-dash and short-term nature of the measures reveals this government has lost any real reason for governing.

From the extra bonus of the low-middle income tax offset with no taper, which is now being used by businesses to argue against raising the minimum wage and the relative lack of concern about those in poverty while trying to exist on JobSeeker, this budget has all the hallmarks of an effort made up at the last minute and where poll numbers were more important than any economic figures

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Budget 2022-23 Wastes Fiscal Windfall on Election Gimmicks

The Commonwealth Government has tabled its budget for the 2022-23 financial year. As the nation emerges from two years of lockdowns and border closures, with less than two months until a federal election, this budget is focused on getting the government re-elected -- rather than addressing the challenges of public health, stagnant wages, and sustainability facing Australia.

This failure is all the more regrettable given the enormous discretionary fiscal resources which the government has at its disposal: the budget projects $133 billion in extra tax revenues over the next five years, compared to its MYEFO projections just three months ago, thanks to strong economic growth and rising nominal GDP. But instead of ploughing those revenues into reforming human services (like health, aged care, early child education, or disability services), undertaking a genuine policy to revitalise domestic manufacturing, or accelerating the energy transition, the government has prioritised one-time cash handouts to entice voters in the upcoming election.

In this comprehensive budget overview, the Centre for Future Work's team of economists unpacks the budget, considers its effects, and suggests alternatives.

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A short-term budget with no vision or coherency

The 2022-23 budget is one of the most shameless election year budgets in memory. 

With the opportunity to use windfall gains in revenue to begin the fix of structural issues in the economy dealing with the low paid and essential services, the government instead has thrown money at voters in the hopes of re-election.

The Centre's Fiscal Director, Greg Jericho, goes through the budget numbers and finds that despite predictions of once again strong wage growth, the underlying assumptions are overly optimistic and would even still leave workers worse off than they were in the middle of 2019 until 2025.

The budget forecasts are for strong growth now, while the money is being pumped out, but once that ends we find yourself back with the same middling growth we had prior to the pandemic. 

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In next week's budget watch out for the tax cut that won't cut your tax

Next Tuesday, Treasurer Josh Frydenberg will deliver the 2022-23 budget. As it is only 2 months from the next federal election, the budget will be even more politically charged than usual.

And while there will be the usual attempts to suggest better wages growth is just around the corner and those on low-to-middle income earners are benefitting the most, we should watch out for the almost guaranteed spin around tax cuts. 

The Centre's Fiscal Policy director, Greg Jericho, notes in his Guardian Australia column that the low-to-middle income tax offset (LMITO) was meant to be discarded when the Stage 2 tax cuts were introduced. However because doing so would have delivered no net benefit to people earning below $90,000 the government extended the offset in the 2020 budget. 

It extended the offset again last year claiming it was providing tax relief to "10 million low-and-middle income earners" despite it actually doing nothing other than keeping the tax rate of those workers at the same level.

We can expect the same to occur next week. 

Budget spin is always a sight to behold, but we are now at the point where income earners are being told they are getting a tax cut that does not actually see them pay any less tax.

Meanwhile the Stage 3 tax cut that will deliver a cut of up to 4.5% for those earning $200,000 remains in place.

Spin and imaginary tax cuts for some; truly excessive tax cuts for others. 


Australia’s Skills System Continues to Crumble After COVID

A new report by Centre for Future Work offers a comprehensive review of vocational education and training (VET) in Australia, confirming Australia’s VET system shows growing signs of erosion, fragmentation and dysfunction. Several high-profile government announcements during the pandemic designed to address skilled labour shortages have not altered the VET system’s worrying trajectory.

Fragmentation & Photo-Ops: The Failures of Australian Skills Policy Through COVID by Senior Economist Alison Pennington reviews official data on VET funding, enrolments, and apprenticeships. The statistics paint a grim picture of a VET system starved of consistent funding or focus, fragmenting into scattered offerings of non-accredited and ‘micro-credential’ courses, mostly provided by private for-profit training companies.

“Continued decline in enrolments and eight years of declining apprenticeship completions make it very clear: Australia’s domestic skills pipeline is in disarray,” said Alison Pennington, Senior Economist at Centre for Future Work and the report's author.

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Flat wages and booming house prices cause housing affordability to plunge

Since the stimulus measures introduced in 2020 to prop up the housing market during the pandemic, house prices have exploded. In 2021 property prices across Australia's capital cities rose an astonishing 24%. Combined with the stagnant wages growth of the past 8 years, housing affordability has fallen dramatically. 

A decade ago the medium-priced house in Sydney was equivalent to 5.8 times the annual income of a median household; now it is 10.8 times that income. 

Greg Jericho examines the issue in his column in Guardian Australia and drills down to look at the affordability of housing across the nation and finds a shocking, yet unsurprising tale - and one that deserves a much greater focus in the coming election campaign than is currently the case 

https://www.datawrapper.de/_/GmaeJ/

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Sustainable Energy Critical to Australia's Aluminium Future

New research from the Centre for Future Work shows that the rapid transformation of Australia's aluminium facilities to sustainable sources of electricity would spark substantial economic benefits: for the aluminium industry, its supply chain, and for the burgeoning renewable energy sector (which would achieve greater critical mass from major new power supply contracts).

The report, by Jim Stanford (the Centre's Director) and Alia Armistead, looks in detail at the Tomago aluminium smelter in the Hunter region of NSW. It is Australia's largest smelter, and is currently powered through electricity mostly sourced from coal-fired generation. The facility has pledged to move to renewable power sources by 2030 -- and the new report confirms that this would underpin long-term industrial and economic benefits felt in all parts of the country.

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Record number of people working multiple jobs reveals the problems for workers

The latest Labour Account figures from the Bureau of Statistics reveal that at the end of last year a record percent of people were working more than one job.

The Centre for Future Work's Greg Jericho has analysed the figures and found an abnormally large number of new jobs since the pandemic have been in secondary jobs.

In the December quarter of 2021 a record 6.4% of employees were working multiple jobs

This unfortunately is not a pandemic-led one-off but part of a now 6-7 year trend that finds workers who are facing fewer hours, more insecure work, and getting pay rises that barely keep up with the cost of living being forced to seek another job to pay the bills. 

See Greg's full commentary in The Guardian: "Rise in hours worked signals post-lockdown recovery, but more people have multiple jobs than ever"


Australia's Lopsided Economic Recovery

While the headline news of 3.4% GDP growth in the December quarter of 2021 might suggest the economy is bouncing back, Greg Jericho, Policy Director for the Centre for Future Work, has found that the national accounts reveal just how badly workers are missing out.

In the last three months of last year, households in NSW, Victoria and the ACT came out of lockdowns and spent money propelling almost all of the economy growth in the economy.

But while households are providing all the growth, workers are missing out on the rewards. The share of GDP going to employees hit a record low in 2021 and as government stimulus begins to be withdrawn the picture is not as optimistic as the (erratic) quarterly growth figures might suggest.

Please see Greg's full commentary in The Guardian: "Don’t get too excited by Australia’s rebounding economy – it’s a distorted snapshot of the true picture."



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