For Australia’s Coalition government, ‘jobs and growth’ is the catchphrase used to describe its claim to success as an economic manager. It bases this claim, in large part, on the remarkable expansion in employment growth of near 300,000 a year since 2016. It asserts that this outcome is attributable to its policies of budget thrift, its pro-business tax agenda and its commitment to economic reform. It also includes (though not publicly acknowledged) its policy of maintaining very high net overseas migration (NOM). This latter policy commitment is shared by the Treasury and the Reserve Bank of Australia (RBA) (though again not stated in the public arena).
The Coalition is struggling to maintain this ‘good manager’ status now that growth in the economy, in consumer expenditure and wages has slowed sharply. So has growth in labour productivity, that is, output per hour worked.
This report analyses these developments. It shows that Australia’s current economic growth is almost entirely attributable to increases in hours worked. The Coalition’s vaunted capacity as an economic manager has been reduced to dependence on extra work inputs, most of which are due to its high NOM policy.
In the case of the RBA, it has been carrying the heavy work of trying to kick-start the economy by aggressively reducing official interest rates. This policy has not worked.
It is not widely known that the RBA has recently admitted that the main reason for this failure is that Australia’s labour supply has been growing much faster than the RBA had predicted. This surge in supply, the RBA now states, has neutralised the stimulus effect of its interest rate cuts. It admits that such is the abundance of labour that employers have little incentive to increase wages.
The RBA, however, has not acknowledged that high NOM is the main source of this abundant labour supply. Nor has the Treasury. To do so would be to admit that the ‘jobs and growth’ strategy is part of the problem, rather than the solution to Australia’s current economic malaise.
This report argues that another bout of economic reform is unlikely to rectify the situation. This is because the impact of past Hawke/Keating reforms has been to destroy Australia’s manufacturing base. In the absence of targeted industry policy, further opening of the Australian economy to international competition will consolidate Australia’s dependence on its one area of comparative advantage, that is, its natural resource based commodities.
The conclusion is that it is foolish to load more and more people onto a domestic economy whose place in the global economy is dependent on this narrow commodity foundation.