In retrospect, what were we thinking? Did we really believe private companies would put serving the public above profit? That companies wouldn’t take advantage of light-touch regulation? That their insistence on commercial confidentiality wasn’t designed to protect their operations from scrutiny?

Which leads to another question: is our whole approach to social services systemically flawed?

Mark Considine, a professor of political science at Melbourne University with decades of experience in examining social programs, thinks so. His recent book The Careless State brings together what we tend to see as separate problems — problems that add up to an indictment of the privatisation and deregulation of Australian social policy — and provides some pointers to how we could do better.

Social services reform became an extension of the enthusiasm for financial deregulation, free markets and privatisation that swept the world during the 1980s and was taken up by the Hawke and Keating governments in Australia. Why not try market-based reforms in new areas, even though they were outside the traditional market economy? Lumbering, inefficient bureaucracies and the community service model went out of fashion; competition, choice and entrepreneurial flair were all the rage.

Efficient markets are driven by price competition, but in the new social service markets prices were set by a single purchaser of the services, which was the government. But governments lost touch with how services were provided and often found themselves reduced to mopping up and repairing when things went awry.

Not-for-profit providers shrank, unable to compete with the often ruthless cost-cutting and understaffing of their profit-making rivals. Clients, particularly the vulnerable, often fell prey to lack of information or misleading information. The absence of real alternatives made choice illusory.

Another result was that the quality of services deteriorated. “If money can be made by providing a terrible service, that is what a market will allow,” writes Considine. Serious fraud and rorting of the rules, costing billions of dollars, were evident in all the market-driven services he examined.

So what now? The timing may just be right for a serious reassessment. A change of government in Canberra and the searing experience of robodebt might provide the impetus for change.

One of those who commented on a draft of Considine’s book was Glyn Davis, who was vice-chancellor of Melbourne University. Davis has since been appointed by Anthony Albanese to head the Department of the Prime Minister and Cabinet, and wants to pursue the issues Considine identified.

Not surprisingly, The Careless State has struck a chord with non-government providers and charities, though not so much with for-profit enterprises. It also has attracted international attention: Considine has been invited as the keynote speaker at the annual Social Outcomes conference in Oxford next month.

Considine says that Britain saw a similar shift to market-based services, starting with the Blair government. But it was never as gung-ho in its approach and is already well on the way to a reconsideration. He recalls a British bureaucrat remarking that his counterparts in Canberra “were always more Catholic than the Pope.” Denmark, Israel and the Netherlands have already moved away from a free-wheeling market approach towards a more mixed model of public coordination and governance.

Australian politicians are starting to take notice as well. As chair of the select parliamentary committee on employment services, Victorian federal Labor MP Julian Hill kept the attention of his audience of employment providers with a provocative speech last October. “Over two decades of evidence raises legitimate questions about the impact of marketisation,” he said, “and there are a growing number of informed sceptics deeply concerned that competition and choice has failed and will continue to fail the most vulnerable consumers.”

The Albanese government made some changes to employment services last year. Among them was that those jobseekers considered the easiest to return to work are no longer assigned to employment agencies, for whom they were easy earners, but are instead referred to a digital service. The existing system remains for two-thirds of unemployed people, however, including an estimated 500,000 who have been on benefits for more than a year — a figure that has barely changed despite a substantial fall in overall unemployment.

The government’s changes prompted Hill to ask his audience: “Will you respond to the greater flexibility in the system and upfront investment by investing in people? Or will we see more ‘creaming and parking,’ as has plagued the privatised system for twenty years, underinvesting in those who need the most help?” Hill was referring to the fact that more money could be made by “creaming” — moving the easiest clients quickly into jobs — while “parking” those with greater needs but fewer prospects of employment.

Those hoping Hill’s views may be tempered by Liberals on the committee could be disappointed. Russell Broadbent, a Victorian Liberal MP with a long record of hewing an independent path, is the committee’s deputy chair. He praises Hill’s bipartisan approach, is impressed with the critique developed by Considine (who has given evidence to the inquiry), and is concerned the present system plays into the hands of those who argue that “everyone who hasn’t got a job is a slacker. That is just not true — most have multiple barriers to entry into the workforce.”

Broadbent also makes broader criticisms of the market-based social services. “How come private aged-care providers drive exceptionally beautiful cars? It’s not because they’re living on the breadline: it’s because they have taken their million dollars out and say to the managers ‘there’s the money that’s left — make it work.’” He hastens to add that not everyone deserves to be tarred with the same brush.

When Paul Keating’s government shook up employment services in 1995 it went further than most developed nations. The Commonwealth Employment Service was retained but forced to compete with private job agencies. The unemployed would be able to shop around for the best service, and quality would be assured by competition between providers.

As the rhetoric of the time put it, the government would be steering, not rowing. It would set the policies but not run the services. The shift fitted nicely with another fashion — the drive for smaller government.

Capturing the mood of the moment, Keating favourably compared the new market with the previous public “monolith.” But Considine quotes another reason Keating gave for the reform: “One of the things you have always got to do when you think about social reform in Australia is to make it Tory-proof… you have got to hermetically seal them so they can’t get their nasty little right-wing fingernails under them and tear them away.” In short, Labor adopted a policy it thought the Liberals could only agree with.

That’s not quite how it worked out. The Howard government did retain the changes but reshaped them in its own, harsher image. It increased the proportion of employment services transferred from the CES to private providers from 30 per cent to 50 per cent and whittled it away further in subsequent years. Then it closed the government body down completely, leaving the whole field to non-government providers.

It also removed the “mutual” in the mutual obligation policy introduced by the Keating reforms, cutting spending on the training programs that the government had provided for long-term unemployed and introducing Work for the Dole as a condition for retaining benefits. This pandered to the populist notion mentioned by Broadbent — the unemployed as “slackers” or “bludgers” (see also robodebt). Although it has been shown to do almost nothing to help people find real jobs, Work for the Dole has been retained by the Albanese government.

Against a background of rapidly increasing demand for social services, the same arguments for choice and competition influenced new policies in aged care, childcare, vocational training and later the NDIS. In the first two decades of this century, aged care spending rose from 2.8 per cent to 3.5 per cent of the total federal budget. For childcare the increase was from 0.77 per cent to 1.53 per cent; for employment services, including income support and job assistance, from 3.3 per cent to 4.5 per cent.

In the name of “contestability,” for-profit firms were allowed to offer their services alongside not-for-profit companies and community organisations. “A church agency with a history of 100 years of philanthropic work to the unemployed would be considered no better and no worse than an entrepreneur seeking to make a profit from the same social services market,” writes Considine.

Even the most respected charities were sucked into the vortex of ruthless competition. In 2005, the Salvation Army in Victoria was forced to repay more than $9 million for fraudulently upgrading unemployed clients to a “highly disadvantaged” classification so that they attracted much higher fees. Staggeringly, a 2012 audit found that only 42 per cent of job-finding fees charged by providers were genuine.

Private providers also sprang up like mushrooms when vocational education and training was progressively deregulated and privatised, starting under the Hawke government in the 1980s and eventually enfeebling the states’ TAFE systems. The reforms culminated in what Considine describes as “the most spectacular frauds yet seen in any social program… With extraordinary profits to be made, the system was deluged with providers targeting the most disadvantaged customers with courses that had little value and sign-up incentives that made it appear they were getting their program for free.”

Students had choices but insufficient information to make them meaningful, particularly if they were international students. In theory, they could switch to other providers if they were unhappy about the quality of the training they were receiving. In practice, enrolment and course fees created effective barriers. The education and training provided by some firms were so poor that childcare firms refused to employ their graduates.

Childcare itself has also performed poorly. Government subsidies for the rapidly expanding sector often feed almost directly into higher fees and bigger profits. A 2021 study found that an Australian couple on average wages spent 16 per cent of their income on childcare, compared with 3 per cent in South Korea, 4 per cent in Sweden and 5 per cent in Iceland.

“In effect childcare providers lift fees according to what the consumers will bear, with politicians then pressured to reduce some of the cost this generates for families,” Considine writes. He adds that childcare has also become a real estate business, with a bias towards the suburbs with the best prospects for capital gains.

The shortcomings in another market-driven sector, aged care, were tragically thrust into the spotlight during Covid, particularly in Victoria. The aged care royal commission’s scathing report labelled the neglect of clients, including physical and sexual abuse by staff, a “disgrace” that “should be a source of national shame.” Cutting costs on meals, typically described in promotional material as “home cooked”, meant many in care were malnourished.

The pandemic also highlighted how the best-quality care was being provided in government-run homes, where there were far fewer deaths. Eighteen reviews of aged care over twenty-four years led Considine to the conclusion that governance of the sector was “catastrophically weak.”

Substantial increases in funding disguise the fact that the system has not kept up with the increased demands of an ageing population. Considine estimates a 40 per cent reduction in spending per client over twenty-five years, coinciding with the steady shift from a community service to a market model.

Regulation has increased but is often ineffective. Large-scale gaming of the system is evident, with the proportion of nursing home residents classified as needing complex health care — which attracts higher funding — increasing from 12.7 per cent to 53 per cent over the decade to 2019.

Inspections of facilities do occur, but always with plenty of notice. “You knew at least a week ahead,” says one executive quoted in the book. Remarkably, the industry has prevailed in its strong objections to unannounced inspections. The Australian Aged Care Quality and Safety Agency is compromised by operating inside the health department, which makes the policy decisions in aged care.

For providers, the incentives are perverse: rather than rewarding them for higher standards, the system encourages them to cut costs to generate higher demand and bigger profits. Staff are underpaid and undertrained, which also means they lack the authority to advocate on behalf of clients.

Considine believes the aged care royal commission has not gone anywhere near far enough in its recommendations. “There’s a lot of regulation raining down from above but not much internal self-management and learning,” he says. “We haven’t actually laid out the basis of a transparent care strategy. I think there is still a very high likelihood, even with more trained personnel, that the management of some of these residential places could be behaving in a really unsatisfactory fashion.”

The National Disability Insurance Scheme, the largest reform in social policy since Medicare, is admirable in its charter to give everyone with a serious disability the right and the means to obtain the assistance they choose and need. What sets it apart from the other social programs Considine examined is the role of two intermediaries — local area and support coordinators — who help clients draw up a plan and implement it, making for more effective choice.

But the NDIS still incorporates some of the same problems Considine identified in the other programs. It relies on a market for services, with the aim of using competition between providers to achieve greater efficiency. But the services offered have not always been adequate in terms of quality and availability.

The NDIS example raises another weakness in market-based social programs — what Considine calls the “black box.” Instead of the government prescribing how services are delivered, it allows providers to offer services according to their own “secret recipe,” in the interests of innovation, competition and efficiency.

Considine gives the example of a provider who suggests weekly appointments when monthly appointments are adequate; clients then ask for higher funding to cover this. The government’s National Disability Insurance Agency, or NDIA, may see costs going up but be unable to act effectively against over-servicing because it doesn’t know enough about the services provided or has limited ability to act.

The Quality and Safeguards Commission is supposed to be the NDIS cop but it is seldom on the beat. In 2020, when it reported on the death of a person whose carer was charged with manslaughter, it had received more than 8000 complaints over two years but banned only one provider.

Considine identifies other inequities in the NDIS, with better-off or more articulate people or their families able to argue for better care plans. And the government’s arm’s-length approach creates the ever-present danger of fraud, as it has done in other choice-based social systems.

Last year, the NDIA reported that eighteen people had been charged since 2020 over alleged fraud against the NDIS totalling up to $14 million. At the same time, the head of the Australian Criminal Intelligence Commission, Michael Phelan, estimated that as much as a fifth of the $30 billion annual spending on the NDIS had been misappropriated. His agency had uncovered fake NDIS clients, systematically inflated invoices, payments for services never provided, and a network of professionals helping criminals exploit the scheme.

The picture Considine paints is not unremittingly bleak. Workplace health and safety has moved in the opposite direction, from a private insurance market approach to something closer to a public–private partnership, with greater government — in this case state government — involvement and control. The cost of the schemes Considine examined in New South Wales and Victoria rose and fell at different times but were ultimately brought under control alongside improvements in health and safety.

Employers are still able to choose their insurers, but uniform standards were set and operators are required to be more transparent, encouraging a “learn from the best” culture, as opposed to the black box approach. And workplace inspections occur without prior notice.

One other area Considine identifies as an outlier is maternal and child health, which is still a public service delivered by state governments and local councils at centres staffed by specialist nurses. The service is available to everyone; to the degree choice is provided, it involves public rather than private providers. The service has a high reputation, says Considine, and offers few opportunities for fraud or “creaming.”

While the Albanese government seems prepared to listen to critics of the present system, and while at least some people believe it is open to persuasion, its risk-averse approach to change raises questions about its willingness to embrace wholesale reform.

Some signs are less than encouraging. The government’s draft national care and support economy strategy talks, among other things, about “functioning markets, sustainable funding and… productivity gains.” In its response, the Australian Council of Social Service urges the government to look at better options, including alternatives to markets, given the “litany of systemic failures and inadequacies with markets in social services.” Anglicare argues that the government should take back the control and operation of employment services.

Considine believes the markets-and-choices model has been exhausted. The pendulum needs to swing back towards empowering the clients and staff of the services — “from choice to voice,” as he puts it.

A culture of improvement and innovation must come from within. Vulnerable people in particular should have access to specialists who advocate for their needs. The black boxes within which providers guard their business models have to be replaced with more transparency. Governments need to take responsibility for services as well as setting the standards.

Is that enough? “I don’t have the view that nationalising these services is necessary,” says Considine. “In most of these social services, where the government has been working with community organisations, it works well. There are some private organisations in childcare and aged care and parts of the NDIS who are credible.

“I don’t have a problem with a mixed economy. I have a problem with running a social service as if is a market. You need to run it as a public service because that is what it is.” •

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It’s not just theory. Recessions in the United States have come in all shapes and sizes since the end of the second world war, but most have been V-shaped. Australia’s few recessions have generally followed the same pattern.

But as financial wonks like to say, past performance is not a sure guide to the future. There are many reasons to think that Australia’s Covid-19 recession won’t follow the pattern. The government’s reliance on the shaky V-shaped assumption has resulted in a budget that’s big on spending but small on stimulus.

Covid-19 has not created a normal recession. While some recessions affect demand (like the 9/11 attacks, which kept US consumers at home) and others affect supply (earthquakes and tsunamis that cripple businesses), Covid-19 affects both. Government lockdowns and the fear of getting sick have kept consumers at home, while the shutdown of supply chains, shortages of workers, the inability to source inputs, and the sudden fall in international tourism, students and migrants have devastated businesses.

More than 900,000 businesses are on JobKeeper. The sad reality is that many will collapse once supports are removed, and that will reduce the economy’s capacity to produce goods and services. The speed of the recovery will hinge on the economy’s flexibility — how quickly workers can shift into new jobs, how quickly new businesses can be created and how quickly capital can be redeployed. Australia’s reduced labour mobility and high barriers to entry for new businesses suggest a slow process awaits.

International developments throw more cold water on a V-shaped recovery. It’s quite a list: Australia’s deteriorating relationship with China, our biggest trading partner; America’s unpredictability; growing calls around the world to reduce dependence on overseas suppliers; the collapse of the World Trade Organization’s dispute settlement system; the tightening of Australia’s foreign investment regime; an exchange rate already back at pre-crisis levels; and that collapse in tourists, immigrants and the international tertiary students who make up our third-biggest export sector.

All these conditions suggest less international support for the Australian economy after Covid-19 than we had before. This is a big problem for a country that gets a fifth of its gross domestic product from exports, $4 trillion of its capital stock from foreign investment and most of its GDP growth from immigration.

Then there’s the health crisis itself. The budget’s V-shaped recovery assumes not only no more outbreaks — a bold assumption when we look around the world today — but also the widespread availability of a vaccine by 2021. As the budget itself notes, the timing and efficacy of a vaccine is highly uncertain. Even if it eventuates, the US Centers for Disease Control and Prevention has sought to moderate hopes that it will mean an instant return to life as normal, noting that face masks are more guaranteed to protect against Covid than a vaccine.

Yet a V-shaped recovery is the budget’s baseline — and the flaws in that assumption have significant consequences for the government’s planning.

The budget’s income tax cuts, for instance, are liable to be saved, not spent. While an investment allowance is worth a try, it assumes that cost is stopping businesses investing, rather than an absence of customers. (The poor take-up of similar measures in the past may suggest it’s the latter.) The budget has no plan for substantive structural reform to boost confidence, and some of the areas where stimulus would be most effective are conspicuously absent — infrastructure investment and the construction and repair of public housing represent an unusually small share of a big-spending budget.

There is also the question of where money is being directed. Covid-19 has hit the services sector the hardest, but it’s manufacturing that’s singled out for support. Covid-19 has disproportionately affected women, but most budget measures favour men and male-dominated industries. Covid-19 has caused massive unemployment, but it’s the employed who get the tax relief. Covid-19 has caused huge challenges for young people, but funding changes and a lack of support for universities threaten to make things worse for many.

The new JobMaker wage subsidy program, an improved NBN and investments in apprenticeships are the bright spots in the budget. But the risk is that Australia’s recovery more closely resembles a K than a V, with some industries booming (digital, manufacturing) while others go bust (universities, tourism), and with some cohorts of people benefiting (men, the middle-aged, the employed) while others aren’t (women, young people, the unemployed).

A V-shaped recovery is the goal, but it won’t be achieved if large segments of the population and the economy are left behind. The need to make growth more inclusive has never been stronger. •

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The biggest budget announcement is full immediate expensing of business investments, at a cost of $26.7 billion in just over two years. Under the scheme, almost every company in Australia will be able to immediately write off in full any eligible depreciable asset. Bringing forward depreciation reduces the real cost of investing for firms, particularly in long-lived assets such as plant and equipment. Similar schemes have proven effective in boosting business investment and employment.

The plan to offer wage subsidies to firms that hire workers under thirty-five should boost employment. Young people have been hardest hit by the Covid-19 recession, and are at the greatest risk of scarring should they remain out of the workforce for an extended period. The government will subsidise the wages of newly employed workers to the tune of $200 per week for new employees under thirty, and $100 per week for those under thirty-five, so long as they are employed for twenty hours a week or more and are a net addition to the payroll. This will support employment, but it’s a big step down from the JobKeeper wage subsidy, which is scheduled to be phased out by March next year.

Each of these measures will support employment and investment. But most striking is what’s been left out of the recovery plan for now, especially more direct measures to boost employment, and support for household spending beyond next year.

The plan to bring forward $13 billion in personal income tax cuts will help, but the extra money for middle-income earners won’t flow through until mid next year. Further cash handouts of $250 to pensioners and carers, in December and again in March 2021, should also boost spending, although many pensioners proved reluctant to spend the first two tranches in April and July. But there’s little in the budget beyond the end of next financial year to keep households spending.

So what’s missing?

Social housing is the most obvious absentee, given it can be rolled out quickly and delivers something that is desperately needed. Industry forecasts suggest that 12 to 18 per cent of all construction workers could lose their jobs in the months ahead, as the pipeline of apartment buildings starts to dry up. The government should have committed to build 30,000 social housing units, at a cost of $10 billion, to quickly fill that hole.

Boosting the childcare subsidy to reduce parents’ out-of-pocket costs is among the more significant economic reforms the government could have announced. More direct spending on government services like mental health and aged care would also have been a proven job winner. Instead there’s another $10 billion for major road projects, where capacity constraints are already biting.

The question of what happens to the JobSeeker benefit remains unresolved. More than a million Australians are benefiting from a temporary $250-a-fortnight boost to JobSeeker from the coronavirus supplement, but that’s due to end in December. The government says it will make an announcement closer to Christmas, but the lingering uncertainty will crimp households’ spending in the meantime.

Support in the budget is so heavily concentrated in the short term that policy decisions taken since the Mid-Year Economic and Fiscal Outlook last December actually improve the budget bottom line in 2023–24.

At least some further spending in some of these areas is almost inevitable in the coming months. Beyond JobSeeker, the Royal Commission into Aged Care is all but guaranteed to recommend substantial further funding for aged care when it reports next February.

But perhaps the biggest concern with the budget is that it simply settles for getting back to the pre-Covid era, and takes nearly half a decade to get there.

While the government expects unemployment to peak at just 8 per cent by Christmas, it’s still expected to remain above 6 per cent by the end of 2022, and be 5.5 per cent by mid 2024. Yet those who can still remember pre-Covid Australia will remember the economy back then was nothing to write home about. The jobless rate averaged 5.5 per cent over the five years to February 2020, and the average worker’s wages rose by just 0.3 per cent a year (after inflation) over that time.

Unemployment of 5.5 per cent in four years’ time would remain well above Treasury’s “full employment” estimate of 5 per cent, so it’s no wonder real wage growth is forecast to flatline over that time. Even for people in work, living standards are expected to stagnate.

The government should inject a further $50 billion in fiscal stimulus by the end of 2022. This could drive unemployment one percentage point lower, kickstarting growth in wages nearly two years earlier than under its current plan.

Concern over the cost of public debt shouldn’t hold the government back. Australia is expected to spend 0.9 per cent of GDP on interest this financial year, falling to 0.8 per cent by 2023. That’s lower than the 1 per cent it spent in 2018–19, despite a big growth in debt. And debt is expected to shrink as a share of GDP over the next forty years, despite projections that interest rates will gradually rise from 1 per cent today to 5 per cent within the next two decades.

Budget 2020 is a good start, but there’s plenty of unfinished business. There remains more work to do come MYEFO in December, and the 2021 budget in just seven months’ time. •

Brendan Coates is Household Finances Program Director at Grattan Institute.

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Josh Frydenberg and his Coalition colleagues have often framed their aversion to government largesse as an argument about our responsibility to future generations. “Every dollar we spend today is a borrowed dollar,” said the treasurer ahead of the budget. “That’s the reality and the debt will be there for future generations to pay back.”

Finance minister Mathias Cormann agrees. He once compared budget deficits to parents using their credit cards to pay for the weekly groceries and then leaving their children to pick up the tab. “Not a single parent would expect their children to pay off that credit card in those circumstances. Neither should the Australian government.”

Does this mean that the current taxpaying generation is behaving unethically by allowing the government to amass a $213 billion deficit to inject life into the economy, and leaving others to pick up the tab?

In reality, the government had little choice but to spend on a vast scale. What might make that spending more or less ethical in intergenerational terms will depend at least partly on the effectiveness of the budget measures according to the government’s job-creation goals.

Take the tax cut for people in work, which creates a multibillion dollar hit to the budget bottom line, or a permanent increase to JobSeeker payments, again with a multibillion dollar price tag. Which one will be judged to have had a greater impact on job creation — and hence a greater ethical justification — in a decade’s time?

The government chose the tax cuts, using the argument that relatively well-off taxpayers will stimulate the economy by spending the extra dollars or investing in job-creating businesses. But economists know that people on higher incomes are more likely than others to save any extra income they receive or park it in tax-protected assets that don’t generate jobs, like negatively geared property. That’s especially true in uncertain times.

That’s why a majority of leading economists agreed that putting cash in the bank accounts of unemployed Australians would be a better bet, since that money would mostly be spent on food, rent and other essentials and quickly circulate through the economy.

The preference for tax cuts over a permanent increase to JobSeeker is indicative of the character of the budget and how the Coalition’s political message has shifted. Once, its primary claim was “deficit and debts are bad, surpluses are good.” Now it concedes that borrowing to stimulate the economy and create jobs is necessary, but asserts that business and private investors must take the lead, not the government. The constant thread is an ideological preference for small government.

So, the $3 billion spend on roads and other shovel-ready infrastructure projects over the next four years is dwarfed by the $26.7 billion cost of enabling businesses to instantly write off the cost of new assets. And support for the housing sector takes the form of more incentives for first homebuyers rather than direct investment in building homes for renters on low incomes, who can never aspire to own a house.

The common ground across the political spectrum is the urgent need to create jobs. But even if the recovery is to be led by the private sector, that still raises questions of priority. Should the government throw its financial weight behind a gas-led recovery or a wholesale shift to a renewable economy? The response to this question might depend on how seriously you follow the scientific evidence of accelerating climate change.

And here’s an interesting thing. The concern that some political and business leaders show for not burdening future generations with public sector debt is rarely matched by an equivalent resistance to saddling future generations with the catastrophic consequences of more droughts, floods, hurricanes, bushfires and crop failures. An uninhabitable Earth is one hell of a credit card bill to leave to our kids.

The well-established cognitive bias to preference immediate rewards over future gains helps explain inaction on climate change. Carbon pricing is an attempt to counter this perceptual flaw by bringing future costs into the present.

An equivalent ethical justification exists for government borrowing in response to the pandemic recession — it can reduce long-term harm. The recession’s impact is being felt acutely by people who have lost their jobs or watched their small businesses go under. They need immediate assistance. But the damage will also reach well into the future.

We know, for example, that many older workers who lost jobs in the early 1990s recession — the one we “had to have” — never worked again. A downturn forces young people out of the workforce or prevents them from gaining a foothold in the labour market, leaving them demoralised and limiting their life prospects. Training opportunities are lost; skills stagnate. Research and development stalls, as does investment in new plant and equipment.

Collectively, these are known as “scarring effects,” and they cause profound damage to the fabric of society. As Reserve Bank governor Philip Lowe warned in a recent speech, “The clear evidence from history is that the deeper and more protracted a downturn, the more severe are the economic scars.”

We have to hope not only that the government’s multibillion dollar bet on a business-led recovery pays dividends, but also that the benefits are widely shared. As Chris Richardson from Deloitte Access Economics points out, the recession’s impact is unevenly distributed, with regions that were already doing it tough “now struggling a lot more” and affluent areas less severely affected.

The differences are not only geographic; the fault lines are also gendered, class-based and generational. As an outright homeowner with thirty-plus years of well-paid employment and a healthy superannuation balance behind me, I am much better placed to ride out a downturn than a single mother casually employed in the tourist trade.

So when the treasurer tells Australians, “We have your back,” someone like me, pocketing my backdated tax cut, might feel better protected than an unemployed worker who just had his or her coronavirus supplement slashed.

The government’s role in borrowing and investing should not be confined to restarting the economy; it should also make sure the risks are shared fairly. And we can’t assume that the collective good automatically arises out of the cumulative effect of private companies seeking to grow their businesses, and of citizens and families advancing their personal interests through individual spending decisions.

Public borrowing for direct public investment in housing, education, research and healthcare isn’t like flexing the credit card to put your groceries on the never never; it’s laying the foundations for future prosperity. A business-led recovery, and giving Australians back more of “their own money” in tax cuts push risk back onto individuals and households. •

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While 240,000 jobs have been lost in manufacturing since 1990, more than five million jobs have been created elsewhere in the economy. Almost 1.1 million jobs were created in healthcare and social assistance. More than 800,000 jobs were created in professional, scientific and technical services. Almost 600,000 jobs were created in construction.

While the employment share of manufacturing has halved since 1990, employment shares have increased substantially in our biggest services industries. It doubled in healthcare and social assistance, arts and recreation services, accommodation and food services, administrative support services, construction and education and training. For professional, scientific and technical services, the employment share has tripled.

The transition from manufacturing to services is not unique to Australia. Although it has been more pronounced in Australia, it is happening in practically all developed countries. Manufacturing represented a third of all jobs in the United Kingdom in 1960 and just one-tenth today.

There were several reasons for this shift in Australia.

On the demand-side, Australian households demanded more services as our incomes rose. We demanded more childcare as workforce participation increased and more healthcare and aged care as our population aged.

On the supply-side, the spectacular rise of East Asia has seen its share of global manufacturing more than double since 1970. Through trade, this meant Australia could specialise: importing cheaper manufactured goods from abroad and focusing our scarce labour and capital resources on producing the services that were in high demand, that earned us more money and in which we had a stronger international advantage.

The boom in Asia also meant increased demand for our mining resources. The higher Aussie dollar sped-up the transition, making our manufacturing exports less competitive overseas while giving households increased purchasing power to import goods from abroad.

It follows that Australia’s transition from manufacturing to services was no coincidence. It was a transition made in response to structural changes that are still with us today. It was a transition that made us richer and created more jobs, particularly given that the services sector is more labour intensive than manufacturing. This raises several problems when it comes to politicians’ obsession with manufacturing and the government’s recent plan to use taxpayers money to support the sector.

First, it means politicians are favouring a sector that employs relatively few people compared to the rest of the economy. Manufacturing is now only Australia’s seventh-largest employer. It employs half as many people as healthcare and social assistance and retail trade, and a third fewer people than construction, professional service and education and training. If the goal is to support workers, it makes more sense to support the sectors where most of them are employed.

Second, if goal is to support the industries and people hit hardest by Covid-19, then the manufacturing sector isn’t the best place to start. Retail trade has been hit hard by government lockdowns, education and training is in crisis from the loss of international students, and women — who have disproportionately shouldered the burden of the Covid economy — are overrepresented in the healthcare and social assistance sector, not in manufacturing.

The bigger problem is that any attempt to shift businesses back into manufacturing means shifting businesses against the economic tide. The structural forces that caused the transition from manufacturing to services in the first place haven’t gone away. Trying to return to the past means pushing the economy’s resources into a sector that is less profitable and less productive.

The prime minister has promised more details on the manufacturing strategy in the budget. But at its core, we know, is a plan to support selected industries within the manufacturing sector. Not only do governments have a terrible history in trying to pick winners — something this one is also doing in energy and education — it risks creating permanent subsidies that are difficult to unwind, distorting the economy by misallocating resources, and failing to bring in private investment anyway if businesses think the support is only temporary.

So why do politicians remain obsessed with manufacturing? Fact is, promising to boost manufacturing is seen as good politics. You can’t go ten pictures into Scott Morrison’s Instagram account without seeing him in hi-vis. But the economic reality is very different. Most Australian’s don’t wear hi-vis to work, and have never done so. If the goal is to support workers, support women, support those hit hardest by Covid-19 and support growth industries of the future, the government needs to focus on services. •

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A subcommittee of COAG, chaired by Indigenous Australians minister Ken Wyatt and Coalition of Peaks chief executive Pat Turner, oversaw negotiation between Indigenous interests and all levels of Australian governments. The result, the National Agreement on Closing the Gap, released in late July, provides an opportunity to assess the ramifications and effectiveness of the Indigenous groups’ involvement in the process.

The agreement included not only sixteen new targets — mostly in policy areas that are primarily state and territory responsibilities — but also a series of priority reforms for joint national action. The latter, included at the insistence of Indigenous interests, were designed to tackle the systemic and structural underpinnings of Indigenous disadvantage; they focused on formalising Indigenous involvement in policymaking related to programs and services; strengthening Indigenous community-controlled organisations; transforming the operations of government organisations to improve accountability and responsiveness; and improving access to data.

The reaction to the new agreement has been mixed, focusing overwhelmingly on the scope, rationale and shortcomings of the sixteen new targets and the absence of other targets. Although a significant segment of public opinion (both mainstream and Indigenous) appears to be supportive of the aspirations and content of the new agreement, widespread scepticism has also emerged. Critics point to the targets’ lack of ambition, particularly in relation to incarceration rates and family violence, and the absence of the investment needed to ensure they are met.

Nationally, Labor and the Greens support the new national agreement, but both parties have called for extra funding. The most surprising criticism came from prominent architects of the Uluru Statement from the Heart, who pointedly questioned the representativeness of the peak organisations that negotiated with governments — a development that raises complex issues about how Indigenous interests are represented and advocated more widely.

Despite this debate, some of the key implications of the new partnership agreement have been overlooked.

The best way to unravel the deeper policy implications of the new Closing the Gap targets is to consider what each of the parties to the agreement — the Commonwealth, the states and territories, and Indigenous interests — were seeking.

While the governments’ objectives were opaque, their shape can be discerned by analysing past policy approaches and by reverse engineering the final agreement. It would be naive to take the public rhetoric of governments regarding their objectives at face value; for example, the Commonwealth refused access to an evaluation of the National Indigenous Reform Agreement, the COAG document that established the Closing the Gap targets in 2008, on the basis that to do so would reveal “deliberative processes” regarding the negotiations.

In my view, the Commonwealth is likely to have had four objectives in refreshing Closing the Gap:

• to shift the goalposts so as to diminish the significance of the annual ritual admission of failure to meet its targets (the “humiliation driver”)

• to avoid structural or systemic policy reforms that are necessary for greater Indigenous inclusion yet would impose unacceptable political costs (the “policy stasis driver”)

• to avoid significant new and ongoing financial investment in addressing Indigenous disadvantage (the “deficit driver”)

• to shift political and financial responsibility for Indigenous services to the states and territories to the maximum extent possible (the “fiscal federalism driver”)

All of these drivers are mutually reinforcing, and their attainment would combine to compound and reinforce Indigenous exclusion.

Because the original Closing the Gap targets, fixed by COAG, were expiring, the Commonwealth was able to corner the states and territories. The premiers and chief ministers were already at the table, and couldn’t easily avoid engaging. In many respects, they also share those four objectives, except that their fiscal federalism driver points in the opposite direction. Above all, they would want to ensure that the Commonwealth doesn’t offload responsibilities for servicing Indigenous citizens and communities without providing funding too, and to ensure that the agreed targets can be implemented and assessed flexibly. In theory, they could have pushed back, but the Commonwealth had cleverly brought Indigenous interests into the design of its strategy, making it politically harder for the states and territories to resist a new negotiation.

The Indigenous parties to the process were the most transparent. The Coalition of Peaks had laid out its overarching agenda in a number of public forums. It had no choice but to do this openly, because it had to build, and importantly sustain, an alliance of disparate organisations with no established organisational infrastructure. The Peaks’ initial core objectives (as set out on its website) were fourfold: shared decision-making, community control, structural transformation of government agencies, and better access to data.

Spelling out these objectives of the parties helps clarify the dynamics of the refresh. First, the Commonwealth’s fiscal dominance and legislative heft outweigh the states and territories individually and collectively, and its policy objectives — though never made explicit — are more straightforward and encompassing.

Second, the parties’ objectives are not “mirror images”: they don’t involve zero-sum calculations and therefore allow for win/win outcomes (admittedly constrained by the respective ambition and comparative strength of the parties).

Third, the Indigenous objectives were, of necessity, dependent on ongoing commitment and implementation by governments, whereas the governments’ objectives were not dependent on Indigenous responses and were essentially one-off decisions, albeit with longer-term institutional implications.

Fourth, while Indigenous interests traditionally prefer more rather than less Commonwealth engagement, it seems likely that they faced a trade-off between their own objectives and supporting the states in resisting Commonwealth disengagement. Their focus on building Indigenous capacity lessened their ability to insist on mechanisms to pressure on the states and territories to wholeheartedly implement the necessary policies.

Finally, a further “interest” is at stake in these negotiations — namely, the wider public interest — though it is inchoate and intangible and has no seat at the table. This interest transcends the partisan and institutional interests of governments and oppositions, and extends beyond the preoccupations of the current generation of Australians. It posits a simple question without easy answers: how might the negotiations contribute to the sort of nation we hope to bequeath to our children and their children?

While it will take some years for the agreement’s tangible outcomes to emerge, an informed assessment of likely outcomes is possible now that we know the detail of the proposal. After all, the strategists and insiders within each party who determined what was and wasn’t on the table made just such an assessment.

My own assessment, against the notional objectives of the parties, is as follows.

The Commonwealth, by achieving all of its likely objectives with minimal political cost, is the big winner. It has retreated from its overarching national policy role to essentially become a mere aggregator of statistics. By strenuously advocating the notion of shared accountability, and by choosing targets that overwhelmingly relate to state and territory responsibilities, it has shifted the responsibility for explaining failure largely to the states and territories, and to a lesser extent to Indigenous interests.

Importantly, the proliferation of implementation plans and performance data across eight jurisdictions and against sixteen (plus) targets, most of which are required to be disaggregated into four or more categories, will create an extraordinarily complex maze of outcomes to be monitored, assessed and (in theory) adjusted as necessary by policymakers. Commonwealth ministers will sleep soundly at night in the knowledge that when everyone is accountable, no one is accountable.

The Commonwealth’s success in avoiding policy responsibility is not just about Closing the Gap. It is the culmination of a decade-long push to shift Indigenous policy responsibilities away from the Commonwealth and towards the states and territories, and away from Indigenous-specific programs and towards mainstream programs. On issues as diverse as heritage protection, essential services, Indigenous housing and legal aid, the Commonwealth has been reducing its footprint. Where it retains responsibility — in relation to income support, for example — it has increasingly turned to mainstream programs rather than Indigenous-specific ones. The new Closing the Gap agreement is a major capstone on a pre-existing trend that will shape Indigenous policy for generations.

Measured against their assumed objectives, the states and territories have emerged from these negotiations as losers. They will each be obliged to develop detailed implementation plans against the various targets and introduce the necessary policies to deliver them. They receive no extra funding, which means they must either raise extra revenue or borrowings, cut services elsewhere, or — perhaps most attractively from their perspectives — find ways to replace tangible actions with rhetoric (which would shift the loss to Indigenous interests).

Assessing the outcomes for Indigenous interests is not straightforward. The first-order issue is that they leveraged their partnership status into an ongoing role in overseeing Indigenous service delivery both in Canberra and in the states and territories. If implemented, this is of huge strategic importance: it would be the first time Indigenous interests are present when decisions with life-changing implications are being made.

Second, the new national agreement gives Indigenous interests a commitment by the governments of eight jurisdictions, plus local government, to a new policymaking approach based on partnership and greater community control of service delivery. This commitment is built around a formal cross-jurisdictional agreement to four overarching priorities:

• Shared decision-making, including a joined-up approach to five policy priority areas and the creation of six place-based partnerships between all levels of government and relevant communities.

• Sector-strengthening plans in priority areas, starting in early childhood care and development, housing, health and disability.

• Transformed government organisations focusing on issues such as cultural safety, improved engagement with Indigenous organisations and, importantly, improved accountability through more transparent funding processes.

• Shared access to data and information at a regional level.

Implemented effectively and with imagination, these reforms will be far-reaching and will fundamentally increase the influence of First Nations people in policymaking across the nation. To have them embedded in a formal agreement signed up to by all levels of government in Australia is a monumental achievement.

Offsetting these nominal gains are two serious downsides for Indigenous interests; risks that I assess as both high-impact and highly probable. First, they will struggle to build — and, importantly, sustain — the organisational capabilities to engage persuasively and influentially both nationally and, most importantly, across eight jurisdictions. A “seat at the table” does not guarantee positive outcomes. This challenge will be more difficult if governments pursue strategies encouraging internal dissension.

The second risk is the one I foreshadowed earlier: that governments will avoid implementing, resourcing and sustaining the strategies necessary to achieve these reforms. Implementation failure is ubiquitous across Australian governments, even in contexts where policymakers have the best intentions and a relatively free hand. Nicholas Gruen recently framed this as a disjunction between what policymakers say and what they do; a problem he described as being endemic in policy circles. Memorably, he referenced Lord Acton’s observation on rowing as the perfect preparation for public life: moving in one direction while facing the other. The new agreement will require policymakers in a variety of jurisdictions to operate at levels of coordination and cooperation that are rarely achieved in mainstream services, and will require them to take account of Indigenous views in fluid policy and political contexts.

But are governments prepared to make such commitments? Two examples, incarceration levels and employment levels, suggest they may not be, and point to the likely impact of that failure on the lives of Indigenous citizens.

After a leaked version of the final agreement revealed a proposed (and not apparently ambitious) goal of parity in incarceration rates by 2093, Minister Wyatt announced that the target would be changed. The parties subsequently reframed the target as a reduction in Indigenous adult incarceration of 15 per cent by 2031. If achieved, according to the most recent data, this would bring the rate of Indigenous incarceration down from 2589 per 100,000 to 2201 per 100,000, against a mainstream incarceration rate of 223 per 100,000. After ten years’ effort, in other words, Indigenous incarceration rates would still be around ten times the rate of the wider community.

In relation to employment, Closing the Gap now aims by 2031 to increase to 62 per cent the proportion of working-age Aboriginal and Torres Strait Islander people who are employed. According to researchers at the ANU, around 47 per cent of working-age people — those aged fifteen to sixty-four — were employed at the time of the 2016 census, compared with 72 per cent of the non-Indigenous working-age population. The new target focuses on the narrower age range of twenty-five to sixty-four, sidestepping extremely low youth employment, both mainstream and Indigenous, and shifting the latter challenge to the target that focuses on youth employment, education and training.

Even if the new employment target is achieved, some 40 per cent of Indigenous citizens aged twenty-five to sixty-four — four out of ten — won’t be employed by 2031, with all the associated health and economic repercussions for individuals, families and the wider community.

If reducing Indigenous incarceration or increasing Indigenous employment were actually a real priority for Australian governments, these targets would be much more ambitious. In fact, their failure to commit to ambitious targets — and to the policy reforms and increased funding necessary to achieve them — clearly represents a lost opportunity for Indigenous interests. But it can’t credibly be argued that Indigenous negotiators — the party with the least negotiation leverage — bear responsibility for this outcome; instead it is a failure of governments to move decisively beyond the status quo.

Finally, what of the public interest? Australia’s continued failure to tackle deep-seated Indigenous disadvantage diminishes us all. The federal government’s ongoing retreat from policy responsibility is driven by short-term politics and doesn’t align with the expectations of the Australian population when they voted overwhelmingly in 1967 to give the Commonwealth the power to legislate in relation to Aboriginal people. More insidiously, the pretence and self-deception involved in reassuring ourselves that we are doing all that is possible, and that somehow the issues are “intractable” and thus insoluble, undercut the very integrity of our democratic culture. This is not a win for the public interest.

All of us, Indigenous and non-Indigenous alike, have a propensity to see politics and policymaking in terms of a destination rather than a journey. Yet, as we reach each milestone, others appear on the horizon.

The Closing the Gap negotiations saw Indigenous groups successfully demanding a role in developing future policies and programs, and forced governments to formally commit to structural reforms, shifting the nature of the journey ahead. Instead of the previously impenetrable terrain surrounding arid targets and arcane statistics, we now face a climb, admittedly steep, through more open terrain on which the milestones are more visible and are linked to a framework for developing further reforms. Despite my pessimism, the opportunities for the nation have expanded. •

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These groups, mostly poorly paid, are in service occupations. But professionals — most obviously, health professionals, from public health experts to doctors and nurses — are also critical to our response. Parents who have suddenly had to oversee homeschooling have been made aware of the hard work done by teachers.

On the other side of the coin, millions of workers have lost their jobs, or kept them only because of the JobKeeper scheme. Those losses have been concentrated in tourism, restaurants and cafes, universities and other service sectors.

Most of the industries shut down by the pandemic, as well as most of those we’ve relied on in the fight to control it, are large employers of women. Job losses have been particularly concentrated in industries that employ young people, who are trying to make the transition from education to employment.

Yet anyone looking at the recovery strategies put forward by governments at state and federal levels would barely be aware that these occupations exist. The focus of all of these strategies is on the kinds of workers (mostly men) who wear hard hats and hi-vis clothing.

The federal government’s National Covid-19 Coordination Commission’s strategy is based on expanding the oil and gas industry, which employs about 20,000 people. The NSW government is even more backward-looking, attempting to extend the life of the doomed coal industry. The Queensland government’s strategy, focused on agriculture, mining, manufacturing and construction, is little better, but at least gives a nod to industries of the future. A fresh airing was given to other perennial proposals, including very fast passenger trains and the Bradfield scheme to turn back northern rivers.

It is hard to overstate how misconceived these strategies are. But it may be useful to look at some statistical evidence before going any further.

Australia’s workforce falls into three groups: manual workers (trades workers, machinery operators and drivers), service workers (community services, clerical and sales) and professionals (including managers). In February 2019, professionals constituted the largest of these groups (36 per cent of employed people), followed by service workers (33 per cent), with manual workers (30 per cent) making up the smallest group. This represents a reversal of the pattern in 1986, when manual workers made up 40 per cent of the workforce, service workers 32 per cent, and managers and professionals only 27 per cent.

Industry data makes the same point. As of February 2019, agriculture, mining and manufacturing accounted for about 10 per cent of the workforce, and construction less than 10 per cent. In total these hard-hat industries are slightly smaller than the combined totals for healthcare and education, a little over 20 per cent of all employment. The remaining 60 per cent of employment is spread across a range of service industries.

An industry strategy focused on hard hats would be misconceived at the best of times. But it is particularly inappropriate in the context of the pandemic. The industries being promoted as the way forward are not only declining in terms of employment share, they are overwhelmingly dominated by men and (with the partial exception of construction) by prime-age (twenty-five to fifty-five) and older workers.

Yet the pandemic has affected female workers, and young people of both genders, far more severely than prime-age men. Women have suffered both in terms of job losses and from the increased burden of domestic work arising from school closures. Younger workers were badly affected by underemployment even before the pandemic and are likely to suffer reduced income throughout their lives as a result of the crisis.

Sadly, none of this seems to matter to politicians faced by a photo opportunity in a hard hat. This is a time when we could do with some radical, even utopian, thinking about the way we organise life and work after the pandemic. Instead, we get policies that resemble an episode of Utopia. •

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Visas to encourage migrants to settle in regional Australia and smaller cities have existed for around twenty-five years, and at first blush the latest changes seem minor. First, a new regional employer-sponsored visa will replace the current Regional Sponsored Migration Scheme, or RSMS, which has existed since 1995. Second, the provisional state/territory government-sponsored regional visa (subclass 489) will be replaced by a new visa to be called the skilled work regional (provisional) visa.

But the devil is in the detail. Where the old RSMS granted immediate permanent residence subject to a two year employment contract, the new regional employer-sponsored visa will give only provisional status. And while the new state/territory-sponsored skilled work regional (provisional) visa is theoretically easier to access, both will be hard to convert to permanent residence.

Both visas will require their holders to live and work for three years in a regional area or a smaller capital city (Adelaide, Hobart, Canberra and Darwin). Before they can become permanent residents, they will also need to earn a minimum annual salary of $53,400. Provisional employer-sponsored visa holders must also remain in the same occupation for the full three years. For these purposes, occupations are classified according to the six-digit ANZSCO job code used by the home affairs department; even minor changes in work — moving from one type of nursing to another, for instance — could potentially wipe out eligibility for permanent residence.

The existing RSMS visa requires newly arrived workers to enter into a two-year contract with their regional employer, and the existing state/territory-sponsored provisional visa requires them to live in a regional area for at least two years, and to work in that area for a year or more earning at least the minimum full-time wage.

Before we get to the detail of these new visas, it’s worth mentioning that the government is also negotiating additional Designated Area Migration Agreements in a number of regions. These agreements provide opportunities for employers to recruit temporary semiskilled workers with limited English and on very low pay. Meatworkers, farm hands, waiters, cooks and truck drivers are likely occupations. These visas are not counted as part of the permanent migration program.

In effect, these agreements outsource to local and regional authorities the federal government’s responsibility to protect workers from exploitation. Because of their low skill levels and generally poor English, these workers have very little chance of gaining provisional or permanent residence, and most will be required to leave Australia at the end of their temporary visa. In this sense, they are totally beholden to their employers. If they are dismissed, some of them — having spent many years working and living in regional Australia — may become overstayers who are at even greater risk of exploitation.

Designated Area Migration Agreements are poor public policy. By making temporary migrants wholly reliant on a single employer, they replicate mistakes in immigration policy made by the United States and countries in Europe, just when those countries are trying to learn from Australia’s experience.

Regional Australia is also feeling the impact of a surge in asylum seekers. The fact that most are working on farms — around 95,000 in recent years — mirrors another feature of failed policy and practice in the United States and Europe. As the chart below shows, the increase in their numbers is being offset by a decline in the stock of working holiday-makers and skilled temporary residents. (None of these people are counted as part of the migration program. But their movements do show up in the Australian Bureau of Statistics’s population figures, which the government can use to reassure business that the migration cuts aren’t as great as they seem.)

Yearly snapshot of skilled temporary entrants and working holiday makers residing in Australia

Source: Department of Home Affairs website. Stock data for working holiday-makers at end June 2019 not publicly available, but first visa grants for these fell significantly in 2018–19.

The government has also set aside 5000 places in the permanent migration program for its new “global talent visa,” which targets people with special skills relevant to niche and emerging industries. Despite the government’s hopes, migration agents advise that take-up of this visa remains low.

According to the government’s March 2019 population plan, the primary objective of the 2019–20 migration program is to increase the number of skilled people settling in regional Australia while reducing the number who settle in major cities. As this chart shows, the anticipated increase in regional visas is indeed dramatic.

Newly issued state-specific and regional migration visas

Source: Department of Home Affairs migration program reports, 2018–19.
Note: For 2018–19, the chart includes only provisional and permanent residence visas counted as part of the formal migration program. Outcome for 2018-19 does not include a small number of state-sponsored business visas. Designated Area Migration Agreements are not included because they offer no pathway to permanent residence. The 2019–20 planning level includes an assumed 3000 Regional Sponsored Migration Scheme visa grants, but is likely to be less than the actual backlog of applications if there is a surge in RSMS applications ahead of 16 November 2019.

While the overall number of state-specific and regional migration visas planned for 2019–20 may be less than the peak in 2012–13, the risks for individual visa holders are increased by four factors: the speed of the increase in numbers; the relatively subdued demand for labour in regional areas; the increase in the proportion of provisional visas; and the much more difficult conditions for securing permanent residence.

The first challenge, though, will be to issue the planned 50,000 state-specific and regional migration visas in 2019–20.

Demand is strong for permanent residency among the rapidly growing group of temporary graduate visa holders currently in Australia. At the end of June, around 90,000 temporary graduates were resident in Australia, and thousands more had returned to a student visa to acquire additional qualifications and/or acquire the three years of skilled experience required for employer-sponsored permanent visas. Most are living in the major capital cities, of course, but perhaps the federal government thinks that many of them will readily move to regional Australia to apply for the new visas.

The new version of RSMS has 9000 places in 2019–20 to be delivered over seven to eight months — around the same as the number granted for the whole of 2018–19 under the current scheme. Changes made in 2018 have already led to a decline in RSMS application rates so great that a large portion of the 9000 visas granted under RSMS during 2018–19 went to people who had lodged an application under the old rules. The maximum age for applicants was reduced from fifty to forty-five; the English-language requirement was tightened; the minimum required skilled work experience was lifted to three years; and a Skilling Australia Fund charge of $3000 was imposed on small businesses and $5000 on large businesses for each migrant worker nominated. All these conditions carry over into the new version of RSMS.

The new version of RSMS will also require the applicant to undertake a formal skills assessment. No waivers will be available, even if the applicant had undertaken a skills assessment in the process of obtaining a temporary graduate visa after graduating from an Australian educational institution.

Although the new visa will include a larger number of eligible occupations, its various conditions mean that it will be less attractive than a general employer-sponsored visa — the opposite of what the government says it intended. Its 9000 places are unlikely to be filled by a sizeable margin.

Perhaps in recognition of this problem, the federal government is taking steps to limit other options for potential migrants and force more of them to apply for regional visas. Overall, only 30,000 places are available in 2019–20 for employer-sponsored visas (far less than the 40,000 to 50,000 of recent years), and that figure includes any visas granted under the existing RSMS.

To shift the focus of the migration program to regional Australia, the government has also significantly reduced the number of places in the traditional points-tested skilled independent category, as the chart below highlights. This is the visa category that has most distinguished Australia as a migrant nation over the past thirty years, and has often been approvingly referred to by British and American politicians because of the strong labour-market performance of these migrants.

The decline in these visas in 2019–20 may be even greater than the chart suggests because the government virtually stopped releasing places in this category in August and September this year. If the government persists with this strategy for many more months, it may run out of time to process even the reduced number of places in this category planned for 2019–20.

Newly issued points-tested skilled independent visas

Source: Department of Home Affairs website.
Notes: The figures for 2018–19 and 2019–20, which are projections, assume the same level of skilled independent visas to New Zealand citizens as in 2017–18. Prior to 2017–18, NZ citizens accessing skilled independent visas were not counted as part of the migration program.

These declines in numbers leave state/territory government-nominated visas to play a crucial role in delivering the 2019–20 migration program.

The Commonwealth has planned for 24,986 places in 2019–20 for two of the existing state/territory-nominated visa subclasses — the direct permanent residence subclass 190 as well as the provisional subclass 489 — in 2019–20. During July and August this year, state/territory governments nominated 1130 migrants under subclass 190 and 3197 migrants under subclass 489. In the latter, the Coalition-held states of South Australia (1662 nominations), Tasmania (703) and New South Wales (649) led the way, with very few nominations from the other states/territories.

At that rate, the planning level of 24,986 looks achievable. But once the old subclass 489 is closed to new nominations on 16 November, all state/territory governments will need to significantly increase nominations under subclass 190 compared to the first two months of 2019–20.

Demand for subclass 190 from temporary graduates in Australia will be very strong. But if the labour market weakens further, state/territory governments may choose to severely limit the number of migrants they nominate under subclass 190. That would result in a shortfall in visa grants compared to the 24,986 planning level.

The Commonwealth has allocated a further 14,000 places for the new state/territory-nominated provisional visa starting from 16 November 2019. Victoria, Queensland, Western Australia and the Australian Capital Territory are likely to use it very sparingly given the possibility of exploitation and the risk that these migrants will be unable to find employment that pays $53,400 per annum over three years. The Labor governments of these states/territories are likely to prefer the subclass 190 visa, which allows for immediate permanent residence — though only for people in the health, aged care and other occupations with critical shortages.

The federal government will be pressuring South Australia and Tasmania in particular to significantly increase the number of migrants they nominate for the new provisional visa. Both governments will be wary of the risk of exploitation and destitution, South Australia especially so given that nominated migrants in that state have in the past complained that they were misled about the ready availability of well-paying skilled jobs.

The key point is that jobs that pay recent graduates $53,400 per annum — the same minimum salary required for skilled temporary entrants in Sydney and Melbourne — are not common in South Australia or Tasmania, or indeed in many parts of regional Australia. This might be a low salary for experienced skilled workers in large cities, but it is too high for relatively recent graduates in regional Australia. (In May this year, average annual earnings for all private sector employees in South Australia were $52,265, and $49,322 in Tasmania. In regional centres — Albury, for example, on $45,382, or Griffith on $41,042 — the figures were even lower.)

In time, of course, most skilled migrants attract much higher salaries. But to expect them to do so soon after graduation puts them at risk of exploitation and/or immigration limbo.

Add to that the high and rising rates of unemployment in these states, and the South Australian and Tasmanian governments would be foolhardy to make extensive use of the new visa. Trend unemployment in South Australia increased from 5.5 per cent to 6.8 per cent over the year to August 2019, with the rate for people looking for full-time work increasing to 7.4 per cent. In Tasmania, trend unemployment increased from 5.9 per cent to 6.6 per cent over the same period, with the rate for people looking for full-time work increasing to 7.3 per cent.

The challenge in South Australia, Tasmania and regional Australia will be to match the skills of potential applicants with the vacancies that do exist (11,500 in South Australia and 3700 in Tasmania as at August 2019). Experience shows that this isn’t straightforward.

Of course, the largest numbers of job vacancies in August 2019 were in New South Wales (76,200) and Victoria (65,400), and most likely mainly in Sydney and Melbourne. As the next chart shows, while the number of job vacancies has risen strongly as a portion of the number of unemployed in recent years, this trend reversed in 2019. Nevertheless, the overall number of job vacancies remains substantial.

Job vacancies as a proportion of total unemployed

Source: Australian Bureau of Statistics catalogue nos. 6202 and 6354.

The government’s skilled migration strategy will do little to tackle these shortages, and cuts to funding for post-school education and training of Australian residents will make them worse. The fact that many overseas students study commerce and finance, occupations that are not in high demand in regional Australia, will also complicate skills matching by state/territory governments.

As it stands, the most likely outcome for the 2019–20 migration program is that the Commonwealth’s skilled migration projections won’t be met without significant policy changes. When the shortfall attracts criticism from the business sector, the government may try to shift the blame to state/territory governments. And to maintain its preferred balance of migrants — two-thirds skilled, one-third families — the Commonwealth might also need to cut back further on the family stream, which would raise a whole fresh set of issues. •

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The commission called the results “mediocre” and “troubling,” but for some sectors they were downright appalling. In farming, mining, construction, transport and retail, labour productivity went backwards. In other words, workers in those sectors were producing less per hour than they had the year before. The latest numbers continued a trend of weakening productivity growth that the commission dates back to 2013.

To understand why Australia’s productivity crisis is so serious, it’s worth recognising why productivity matters. Through Australia’s history, our economy has become massively more productive. Australian workers today produce nearly four times as much output every hour than in the 1960s. This has been a central driver of rising living standards.

Productivity measures how efficiently the economy turns labour and capital into goods and services. When the Australian economy becomes more productive, we are producing more output from a given level of inputs. Higher productivity creates the potential for household incomes to rise faster than the rate of inflation. A more productive economy can be more generous to the disadvantaged, can reduce its impact on the natural environment, and can play a bigger role in international affairs.

Productivity doesn’t automatically bring fairness: in recent times, workers haven’t received their fair share of the modest productivity growth delivered by the economy. But without rising productivity, wages will eventually stagnate and living standards will stop increasing. Whether your priority is longer lifespans or lower taxes, raising Newstart or building motorways, you should be in favour of productivity growth. Productivity is the engine of the economy, and right now, that engine is making a nasty rattling noise.

A few weeks after the Productivity Commission delivered its damning annual update, a group of boffins gathered together in Sydney for a conference about productivity. Convened by the OECD, a global think tank for advanced countries, the event brought together international experts to discuss the problem and suggest solutions.

For Australia, the most hard-hitting presentation came from Treasury’s Meghan Quinn, who revealed that researchers in her department, led by Dan Andrews, had been investing in a new analysis that links together workers and firms, and delving deeply into fresh data about the dynamics of the Australian economy. Since 2002, Quinn showed, the most productive Australian firms (the top 5 per cent) had not kept pace with the most productive firms globally. In fact, Australia’s “productivity frontier” has slipped back by about one-third. The best of “Made in Australia” hasn’t kept pace with the best of “Made in Germany,” “Made in the Netherlands” or even “Made in America.”

And then there’s the other 95 per cent. For these firms, productivity seems an alien concept. In the past two decades, their output per hour worked has barely risen. In other words, nineteen out of twenty Australian firms don’t produce much more per hour than they did when Sydney hosted the Olympics,

What’s going wrong? Part of the problem is that many firms aren’t investing in new technologies. Less than half have invested in data analytics or intelligent software systems. Only three in five have invested in cyber security, making them vulnerable to hacking and ransomware attacks.

It’s not just that companies aren’t investing in technology — they’re not investing in anything at all. This year, the Productivity Commission had to use a new term in its report. Typically, the commission measures how the amount of capital per worker has increased — a concept known as “capital deepening.” This year, for the first time on record, the amount of capital per worker went backwards. The economy had experienced “capital shallowing.” Given that capital deepening has accounted for about three-quarters of labour productivity growth, this is frightening.

Across the economy, businesses are cutting back on research and development and investing less in good management. The share of firms that are “innovative” is no longer growing. A survey of management practices in manufacturing firms found that Australia’s managers rank below those in Canada, Sweden, Japan, Germany and the United States.

It’s been said that you could already tell in the 1950s that Detroit would one day suffer a crash. Although automakers were thriving, the city lacked start-ups. Once the traditional car-manufacturing plants got into trouble, the city slumped. What is true for Detroit holds for cities, regions and countries across the globe: newborn firms are as critical to an economy as newborn babies are to a society’s demography, bringing fresh approaches, shaking up existing industries, and offering new opportunities to workers.

Yet for all the talk of Australia as a “start-up nation,” our new-business creation rate isn’t accelerating. In fact, our start-up rate seems to be stalling, though it’s partly masked by a quirk in the way we measure new businesses. The conventional start-up figures, which are rising, include anyone who registers for an Australian Business Number. This means that when a public servant takes a voluntary redundancy, only to come back the next month as a consultant, he is registered as a new business. Likewise when a tradie is “encouraged” by her boss to become a sham contractor. Neither of these cases involves true business formation, so each distorts the data.

The way to get around this issue is to look only at “employing businesses”: firms that hire at least one worker. On this metric, Treasury estimates that the new-business formation rate in the early 2000s was 14 per cent a year. Now, it’s down to 11 per cent a year. Strip out non-employing businesses and it turns out that our economy simply isn’t hatching new firms like it used to.

Another sign that the economy may be stagnating comes from figures on job-switching. A common myth is that changing jobs is bad for workers, and is happening more frequently. In both cases, the reverse is true. Workers who switch jobs typically experience a significant pay increase. In fact, if you study wages over a career, the largest salary rises tend to come when employees switch firms. Occasionally, job changes will be involuntary and painful — but more often they are voluntary and beneficial.

To see why, imagine for a moment that Australia instituted a rule saying that no one can switch jobs. People who don’t like their boss or want to try working in a different sector wouldn’t be allowed to make the change. Growing companies couldn’t attract workers from their competitors. Such a rule would be profoundly anti-worker. Consistent with this, Treasury’s analysis finds that a drop of one percentage point in the job-switching rate is associated with a 0.5 percentage point drop in wage growth across the economy.

While changing jobs tends to benefit workers, it is happening less often than in past decades. Forget what you’ve read about a fast-churning labour market and the end of “jobs for life”; workers are staying longer in their jobs. In the early 2000s, the rate of job-switching was 11 per cent a year. Now, it’s down to 8 per cent. It’s not the fault of employees: there are simply fewer good opportunities available. According to Treasury’s analysis, much of the drop in job-switching is because workers are less able to transition from mature firms to young firms. With fewer start-ups firms, it stands to reason that there are fewer start-up jobs.

What is to be done? Some people see productivity as a matter of cutting: cutting protections for employees, cutting environmental regulations and cutting the social safety net. Yet when the Productivity Commission was commissioned by the Coalition to compile a list of reforms that might raise national productivity, weakening workplace protections didn’t appear among its top twenty-eight recommendations. Rejecting claims by groups such as the Institute of Public Affairs and the Minerals Council of Australia, the commission’s 2017 Shifting the Dial report noted that “most of the workplace relations law works well to get the balance right between the desires of firms for a fully flexible resource and the need to protect workers from exploitation.”

By contrast, a progressive plan to raise productivity would recognise that the productivity slump has coincided with the marked rise in inequality over the past generation. Earnings inequality, household-income inequality, wealth inequality and top-income shares have all risen in Australia since the 1970s. In several advanced countries, including Australia, productivity growth has outpaced real wage growth: a problem the OECD calls “the productivity–inclusiveness nexus.” Ensuring that workers get an equitable share of productivity gains isn’t just a matter of fairness. Middle-class growth supports consumer demand, which in turn allows businesses to grow. It is not a coincidence that household consumption is languishing at the same time as real wage growth has slowed.

A progressive agenda for raising productivity would fall into three categories: investing in individuals, investing in infrastructure, and investing in institutions.

Investing in individuals: Education is a critical component of productivity. The median woman with a bachelor’s degree earns roughly $800,000 more in a lifetime than a year 12 graduate who completes no further study. For men, the lifetime difference is $1.1 million. This represents a 65 per cent earnings boost for men and an 80 per cent earnings boost for women.

Graduates are more likely to start new enterprises, and more likely to engage in social entrepreneurship. Education also has positive spillover effects, with better-skilled employees raising the productivity of their co-workers.

Over the past generation, the average educational attainment of the workforce has significantly increased, with Australians more likely to complete year 12 and more likely to attend university. But the share of people completing an apprenticeship or traineeship has collapsed, and is currently at its lowest rate since at least 2005. Scandals among private vocational education providers have eroded confidence in that system.

At a school level, completion rates are up, but we have a massive challenge with test scores. The OECD’s PISA tests show a troubling trend, with teenagers’ scores in literacy, numeracy and science declining significantly since the turn of the century. This continues a pattern that Melbourne University’s Chris Ryan and I documented some years ago, when we showed that teens’ literacy and numeracy levels had failed to rise between the 1960s and the 2000s.

At a university level, arbitrary caps on domestic student places were removed several years ago. The principle was simple: if a young person is talented enough to complete a degree, why not allow universities to make a place available? The policy significantly expanded university places, and therefore the productive potential of the economy. But since the beginning of 2018, the federal government has frozen university grants, which has effectively ended the demand-driven system. This has particularly hurt universities with expanding enrolments, and has hit students who want to study in disciplines that rely heavily on government funding, particularly engineering, sciences and allied health.

In a changing labour market, we should aspire to an Australia in which all young people get a great high school education and a post-school qualification. A much stronger focus on teacher quality would improve the performance of Australia’s schools. Pre-apprenticeships can reduce dropout rates in vocational education (currently half of those who start an apprenticeship do not finish). Restoring the demand-driven funding system would enable almost 200,000 more Australians to attend university by 2030. Many of those new students would be Indigenous, from low-income families, or the first in their family to attend university.

To be productive, people also need to be healthy. As the Productivity Commission’s Shifting the Dial report highlighted, it is also vital to ensure that the healthcare system is run as productively as possible. Medicare needs to adapt to provide comprehensive care that rewards general practitioners and other providers for managing complex cases of chronic illness. An examination of the primary care system by the Grattan Institute found that the dominant Medicare fee-for-service model encourages “reactive rather than systematic care,” and that “much greater emphasis needs to be placed on service coordination and integration for people with chronic disease.” Where interventions have been identified as low value, more effort should be put into informing healthcare providers, including through “do not do” lists. Electronic health records can also improve the productivity of the healthcare system by avoiding duplicate tests and ensuring that physicians have the information they need to make the right decisions.

Investing in infrastructure: As technologies advance, no piece of infrastructure is more important than high-speed internet. The difference between fibre-to-the-premises and fibre-to-the-node is critical for applications such as cloud computing, high-definition videoconferencing, telemedicine and distance education.

Choosing to replace the fibre rollout with a multi-technology mix has led to services that are slower, less reliable and more expensive. Time without internet connectivity is a critical source of lost productivity for students and professionals working from home. Unreliable copper services are letting many companies down. The immediate needs for the NBN sound like the advice parents might give a wayward teen: more fibre, higher standards, and proper accountability when providers fall short. It’s also vital that Australia gets the rollout of 5G right, providing the enabling infrastructure not only for smartphones but also for the Internet of Things.

Open data innovation can also be a major driver of economic growth. Four-fifths of American smartphone users use an app that relies on open data every day. The British Open Data Institute has identified open data–driven businesses that employ more than 500,000 people and turn over £92 million. New Zealand’s Integrated Data Infrastructure approach combines anonymised information on health, education and crime to offer insights to policymakers and researchers. Governments at all levels should be identifying high-value datasets that can be anonymised and made available to boost productivity.

Governments also need to improve their data policies. Reinventure’s Danny Gilligan points out that government policies on privacy and cybersecurity are like a brake, while innovation policies are like an accelerator. Yet unlike a car, governments often put the brake and the accelerator a long way away from each other. “Brakes” like the Critical Infrastructure Centre don’t spend enough time talking with “accelerators” like Data61. Gilligan contrasts the situation with Singapore, which coordinates how government engages with data-economy policies to minimise the costs and maximise the benefits. Data could be a significant source of productivity gains for the Australian economy in coming decades, but only if we get the infrastructure right.

Information superhighways aren’t the only kind of highway. Traffic congestion erodes our quality of life and acts as a handbrake on productivity. A fast-growing nation clearly needs better road networks, urban public transport projects and additional parking spaces at public transport hubs. But the answer isn’t merely to “build more stuff,” it’s to build the right stuff. Infrastructure spending must be based on economic cost–benefit analysis, not political calculus. This means giving greater focus to projects that are on the Infrastructure Australia priority list, and for which a business case has been completed.

Real social gains can sometimes come from arrangements such as value capture and public–private partnerships, but the trickiest infrastructure question is “should we build it?” not “how do we finance it?” If the benefits don’t exceed the costs, transport infrastructure is a bad idea, regardless of whether it will be paid for by today’s taxpayers or tomorrow’s taxpayers. And there’s a semitrailer barrelling towards us: as the Productivity Commission’s Shifting the Dial report notes, road-user charging is set for a shake-up whether we like it or not. Right now, the system depends almost entirely on fuel taxes, which will disappear with the advent of electric cars.

Although a smooth transition to clean energy is critical to maintaining strong productivity growth, Australia’s emissions and energy prices are rising. That contrasts with twenty-one other nations — including the United States, Britain, France and Germany — that have decoupled their carbon pollution from economic growth since the start of the century.

Inevitably, our energy system will move from old coal generation to gas generation and renewables. A more productive energy system will improve the productivity of the whole economy. Delaying the transition will only push up prices and increase pollution. As the Reserve Bank warns, climate-related losses pose a risk for businesses and households, and financial stability “will be better served by an orderly transition rather than an abrupt one.”

Straightforward energy reforms can be introduced. The Productivity Commission estimates that reforms associated with the electricity transmission network — such as critical peak pricing and the rollout of smart meters — could generate large efficiency gains. It points out that plenty of other nations have replaced piecemeal solutions with a single price on carbon. It recommends that governments more clearly articulate the trade-off between reliability and cost. And it suggests that we get pricing right, so that producers pay for additional costs they impose on the system (such as frequency management), and users pay for access to the grid (so that people cannot simply use it as a back-up system).

Investing in institutions: The third part of the progressive productivity agenda is to improve institutions so that they support a more productive economy. This starts with how government institutions support innovation. As past Australian Innovation System reports have noted, innovation and adaptation to technology are vital for productivity growth. However, the 2019 Global Innovation Index ranks Australia just twenty-second in the world. Since the global financial crisis, the volume of venture capital investment has fallen by nearly two-thirds. Innovation collaboration between government, business and academia is less common in Australia than in many other OECD nations.

The economic rationale for subsidising research and innovation is that it is not only businesses that benefits from new techniques and products — the community does as well. Federal government funding for science, research and innovation through grants and tax subsidies amounts to at least $10 billion annually. But right now, there isn’t much incentive for firms to work with universities. The government has been slow to implement its proposed Consumer Data Right. Educational bodies and disability groups have complained about the stultifying effect of a copyright law that lacks fair use exemptions. Ironically, innovation policy isn’t very innovative, since the federal government doesn’t devote enough energy to evaluating the impact of its many innovation policies.

The institutions that support trade and investment are also essential to improving productivity. As a medium-sized economy, Australia’s productivity performance is invariably intertwined with our engagement in the region. World trade is just another form of comparative advantage, letting countries specialise in what they do best. Just as your hairdresser doesn’t defeat you when you get a haircut, Japan doesn’t defeat you when you buy a PlayStation. Sellers aren’t vanquishing buyers — both are benefiting from specialisation.

We must do openness better. When it comes to trade, it’s vital to recognise that the best type of trade agreements are multilateral agreements, followed by regional and then bilateral. Bilateral deals can have benefits but can also distort trade. One way of ensuring that trade agreements are in Australia’s economic interest would be to allow the Productivity Commission to scrutinise them before signing, and again a decade after they come into force. This would provide some certainty that vested groups had not captured the negotiation process, and ensure that if we make mistakes, we learn from them.

On foreign investment policy, it would be worth reviewing the plethora of screening thresholds. It is difficult to mount an economic justification for requiring the Foreign Investment Review Board to approve a $300 million business acquisition by a Canadian investor but not a US investor. It would help the public conversation on foreign investment if the Treasury set out reasons for all significant foreign investment decisions: both acceptances and rejections.

We can also be more productive through an institutional push to improve Asian engagement. As the Committee for Economic Development of Australia notes, Australia has less outbound foreign direct investment in China, Japan, Korea, India and all ASEAN countries combined than it does in New Zealand. Among year 12 students, only one in fifty study Chinese. Fewer year 12 students study Indonesian than in 1972. AsiaLink found that more than half of all ASX200 board members demonstrated little or no knowledge of Asian markets. If we are to grow services exports to our region, a higher level of Asia literacy is essential: from the classrooms to the boardroom.

And then there are the institutions that govern markets. In uncompetitive markets, firms have a weaker incentive to pursue productivity gains. One British study found that a 25 per cent increase in market concentration leads to a 1 per cent fall in productivity. Another study attributed about one-fifth of productivity growth to better competition policy.

Over recent decades, several sectors have become significantly more concentrated. The annual volume of mergers has increased fivefold since 1990. At the same time, as we’ve seen, the new-business formation rate has fallen. The result is a significant increase in market concentration across key industries in Australia. One rule of thumb is that a market is excessively concentrated if the largest four firms control more than a third of it. Under this definition, ANU’s Adam Triggs and I found that over half of Australian industries are overly concentrated. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms comprise more than 80 per cent of the market. The World Economic Forum’s Global Competitiveness Report found that Australia does badly on “the extent of market dominance,” ranking us fifty-third in the world.

Compared with many other countries, penalties for anti-competitive conduct in Australia are too low, and our competition watchdog is underfunded. Unlike in other countries, the Australian Competition and Consumer Commission lacks a market studies power, meaning it can’t use investigatory powers to explore public interest issues such as pricing discrepancies and increased market concentration. And after approving a merger, the commission has no systematic process of deciding whether it made a mistake. Like a coach who watches the video replays, post-merger reviews of productivity, wages and prices could help improve decisions in the future.

Tax institutions matter too. Good tax reform involves closing loopholes. As the late Harvard economist Martin Feldstein liked to point out, winding back tax concessions raises revenue more efficiently than increasing tax rates. In economic jargon, closing loopholes has a lower deadweight cost than raising rates. Yet, as the 2019 federal election showed, the economics are easier than the politics. Every loophole in the personal and corporate tax system has its ferocious defenders. If Australia wants to increase productivity, it needs to consider whether it can do so with a tax system that has more holes than a block of Swiss cheese.

Another key set of institutions are those governing management quality. Firms with a healthy management culture are places where employees look forward to arriving at work, where people respect one another, and where diversity flourishes. The best companies listen to their employees, implement good ideas regardless of their origins, and aren’t afraid of change.

The quality of management directly shapes the ability of businesses to adapt and innovate. Managers who lack appropriate technical and personal skills can’t provide the leadership that their firm needs to find continual productivity improvements. Managers who face overly short-term incentives may fail to focus on sustainability and longer-term productivity gains. Discrimination and unconscious bias may lead organisations to overlook talented applicants for appointment and advancement.

There are many creative ways companies can draw on the ideas of their workforce. In one large New Zealand dairy company, for instance, the union initiated a management improvement system with the aim of boosting productivity. Workers are trained in productivity measurement, and the concepts underpinning productivity growth, such as change management and improved teamwork. From their first day on the job, they are encouraged to take responsibility for raising quality, reducing waste, and even considering whether new products can be made with material that is currently being discarded. Managers play a role more akin to coaches than commanders, urging workers to think about improving the way the firm is run. The firm raised its output and quality, but without any loss of jobs.

On a systemic level, a number of German companies foster productivity growth by having worker representatives on company boards. There is even a word for it — Mitbestimmung — meaning worker participation in a company’s decision-making. Many of these firms find that a less confrontational approach produces significant efficiency gains. This occurs to some extent in Australia through our industry superannuation system. Industry superannuation funds are established jointly through employer and employee representatives, and as they become significant investors they have the ability to encourage corporate managers to make better long-term decisions.

There is some evidence that employees in worker-owned firms, such as cooperatives, are more productive and more satisfied. Government policy could do more to foster the growth of cooperatives and mutuals by facilitating greater access to capital for such firms, and access to government grants, particularly for Indigenous cooperatives under the Indigenous Advancement Strategy program.

Productivity gains also need to be shared. Just as business owners would have little incentive to invest in productivity-boosting improvements if none of the benefits translated into higher profits, so too workers have less incentive to support measures that increase productivity if they do not lead to higher wages.

In the 1970s, real wage growth outpaced productivity gains. Economists called it “the real wage overhang,” and the solution was to moderate wage growth so that it came back into line with labour productivity. Today, the economy faces the reverse problem. Even the modest increases in labour productivity that the economy has been producing haven’t flowed into workers’ pay packets. Australia is now experiencing a “real wage underhang.”

As in other nations, this decoupling of wage gains from productivity growth has led to a fall in the labour share of national income. Some estimates suggest that the drop in the labour share since the 1970s might have been as large as 15 percentage points.

One of the theories for the drop in the labour share is that monopolies don’t need as many employees. As economist Jan Eeckhout argued at a recent Reserve Bank conference, “market power depresses the demand for labour: firms set higher prices and therefore they produce less output, for which they need less labour. For the labour market to be in equilibrium, the economy moves along the upward sloping labour supply curve until a new, lower wage is obtained.” Other research presented at the same conference found that the wage slowdown was especially pronounced in sectors that don’t face international competition. Economists have long known that monopolies hurt consumers — now it appears they can harm workers too.

Left unchecked, this trend threatens to undermine the incentive for employees to continue to pursue productivity gains. A more collaborative approach to industrial relations is likely to be in the long-term interests of capital as well as labour. As economist Saul Eslake points out, corporate managers aren’t judged on their share of profits but on their actual profits. Firms would be better with a smaller share of a growing pie than a larger slice of a shrinking one.

Government institutions often pay lip service to evidence-based policy. Instead, they’re often driven by the idiosyncratic ideas of a few people in charge — what has been called “eminence-based policy.” In my book Randomistas: How Radical Researchers Changed Our World, I argue that agencies should be more modest about theories, and more willing to rigorously evaluate programs. One way of doing this would be to systematically conduct randomised policy trials, using treatment and control groups to test government programs in the way that companies test new pharmaceuticals. Already, randomised trials have provided unexpected insights about how to reduce recidivism by drug offenders, how to use video feedback in teacher training, and how to encourage new-business formation in developing nations. Building a better feedback loop helps drive continuous improvement in the productivity of government.

Too often, Australians see productivity as a dirty word — synonymous with working harder, rather than working smarter. But productivity should lead to a better quality of life, in which people have more choices in the workplace and more opportunities to spend time with friends and family. The path towards higher productivity should also allow us to live in a cleaner environment, and to be more generous to the needy. Tackling major challenges, from gender equity to traffic congestion, is easier in a highly productive economy.

Economists talk about the “rule of seventy-two.” If you want to know how long it takes to double living standards, just divide seventy-two by the growth rate. This means that a 2 per cent growth rate doubles living standards every thirty-six years, or about once a generation. But a 4 per cent growth rate doubles living standards every eighteen years, or twice a generation. That’s why we should invest in individuals, infrastructure and institutions, to lay the groundwork for lasting improvements to Australia’s productivity growth rate.

Australia doesn’t have to choose between fairness and productivity. We should be aiming to achieve inclusive growth by sharing productivity gains across the community. This not only creates greater wellbeing but also supports ongoing reform. If an elite cabal captures all of the benefits of reform, its members should not be surprised if the next round of reforms meets a public backlash. The goal should be to raise productivity to the benefit of all Australians. •

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In the year to June 2018, a net 255,480 people from overseas migrated to Australia. That’s just over one new arrival for every 100 people already here. About two-thirds of them settle in Melbourne and Sydney, where they are the dominant cause of both cities’ rapid population growth.

It is an election issue, but only at the fringes, where it is one of the factors driving voters to One Nation and other parties of the far right. There is no debate between the major parties on this because there is an overwhelming consensus among Australian elites that high immigration is a Good Thing, and anyone who criticises it must be a racist.

Opinion polls consistently show that most Australians have a different view. They are not against immigration, but want to reduce it to lower levels. The government has quietly been reducing the permanent migration intake, and has now lowered the annual target from 190,000 to 160,000.

Yet at the same time, unnoticed in the debate, the combined net flow of permanent and long-term arrivals into Australia has soared to its second-highest level ever, and the highest for a decade: 299,190 in the twelve months to February, up by 20 per cent in the past three years.

Most of the arrivals are coming here not as permanent migrants or temporary workers, but as students. And one source stands out: the little Himalayan country of Nepal, just thirty million people, living in one of Asia’s poorest countries.

In 2017–18, one in every 1500 inhabitants of Nepal emigrated to Australia. In an era of strict immigration controls, that is an astonishing number for two countries so far apart, with no common language, heritage or ethnicity.

Over the five years to mid 2018, one in every 500 Nepalis emigrated to Australia — and that’s in net terms, after deducting those who returned. In 2017–18, little Nepal became Australia’s third largest source of migrants after India and China.

Tonight’s ABC Four Corners program will explain how it has happened. Deregulation has allowed universities to selectively lower their standards to bring in more fee-paying foreign students, even when they fail to meet the thresholds for English language skills or academic achievement. And put under financial pressure by the Commonwealth’s funding cuts, some universities have done so.

And it’s not surprising that many of these students are struggling, and that lowers the academic standards that are one of Australia’s selling points in competition for overseas students — along with the ease of moving from student visa to permanent residency.

This is not the first time immigration from Nepal has surged. A decade ago, we saw a scam with training visas, in which “students” from India and Nepal came for training courses in Australia, then quickly vanished into the workforce. The scam saw net immigration set record levels in 2008–09, before then immigration minister Chris Evans shut it down. But most of those who came stayed on here.

At the current pace of immigration, Australia will soon have more residents born in Nepal than in Greece. Nothing wrong with that if they’re doing jobs that only they can do, but the persistence of very high youth unemployment and underemployment — taken together, 633,000 people in March, or 29 per cent of the youth workforce — suggests our leaders and Australians as a society have let them down.

As I have written before, a report last year by Treasury and the home affairs department estimated that in the previous five years, 73 per cent of all net full-time job growth in Australia went to recent migrants. That implies a net growth of only 20,000 full-time jobs a year for Australian-born workers.

That was far too few to keep up with population growth. The Bureau of Statistics reports that between 2012 and 2017, the number of Australians aged fifteen to twenty-four in full-time work shrank by 113,000, while the number unemployed rose by 25,000 and the those underemployed (mostly, wanting full-time work but having to settle for part-time) rocketed up by 102,000.

As with declining housing affordability and growing congestion in Sydney and Melbourne, high immigration is not the only reason why young people can’t find jobs, but it is a central one.

Elite Australian opinion has been indifferent to this epidemic of young people unable to get full-time jobs to get started in life. But it is a reality that is being felt in families and communities throughout Australia, and it is one issue driving the rise of the minor parties on the right. •

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But in that same six months, the Bureau now tells us, Australia’s total output on the trend data grew by just 0.7 per cent. On the more excitable (but unreliable) seasonally adjusted figures that journalists and bank economists prefer to use, it grew by just 0.4 per cent — well behind the rate of population growth.

My esteemed colleagues at formerly Fairfax, the ABC and elsewhere reckon that Australia has entered a “per capita recession.” They can say that if they want to, since the economics profession has no agreed definition of a recession, per capita or otherwise.

That’s not the way I see it — not if we were adding the equivalent of 300,000 full-time jobs a year during that time. What we have, rather, is a heap of confusion. One major source of statistics says the economy was thriving, another says it was stalling. They can’t both be right.

More of that later. But the most important part of the confusion is not over what’s behind us, but what lies ahead.

Across the developed countries, and China, growth is rapidly losing pace. Overnight, the OECD cut its 2019 forecasts for all of the ten largest Western economies, including Australia, as well as for China, India, Russia and most of the other big developing countries. (The sole exception was Indonesia.)

A glance at the recent data in Western countries explains why:

A lot has changed in six months. The global economy has been rattled by the ongoing US–China trade war, by fallout from the looming Brexit, by rising populism elsewhere in Europe and the world, and by the abrupt slowing in the Chinese economy (still not conceded in its official data).

In Australia, the trend GDP figures show our economy grew at an annualised rate of 3.1 per cent in the first half of 2018 but by just 1.5 per cent in the second half. GDP per capita fell marginally, but national income per head, a more useful measure for our current debates, grew slowly.

The most startling aspect of the figures was that the growth we did have mostly came from government spending. In the second half of 2018, on these figures, the private sector accounted for less than a quarter of the total growth in demand. The federal government alone added almost as much to total consumer spending as Australia’s ten million households. State governments were the main driving force for new investment.

On the trend figures, household spending grew at an annualised rate of 1.9 per cent, while private expenditure, on housing and business ventures alike, fell at an annualised rate of 2.8 per cent. By contrast, public consumption grew by an annualised 5.1 per cent (almost entirely by Canberra), and public investment by an annualised 7.6 per cent (almost entirely by the states).

The contrast was striking. Callam Pickering, an economics commentator with the job search company Indeed, points out that over the past decade household spending growth has averaged only 2.7 per cent. That’s about 1 per cent in per capita terms, and a long way from its booming rate over the decade before the global financial crisis. But right now there is virtually no growth in per capita terms. Households, in aggregate, are just treading water.

Why? It’s not hard to find the reasons in these figures:

• Average wages per employee grew by just 1.7 per cent in 2018, a tad less than prices (1.8 per cent). Over the seven years to December, the national accounts tell us, the average wage grew by just 11.2 per cent, while prices grew 14.3 per cent on average. The annual average growth in wages has been 1.5 per cent, compared with 4.5 per cent over the eight years before the GFC.

• Households are now saving just 2.2 per cent of their disposable income, as more and more of their stalled incomes disappears in increased taxes and mortgage bills. The nation’s income tax bill alone has grown by 16 per cent, and 9 per cent last year alone.

Before the GFC, Australians were running down their savings because their incomes were booming, jobs were plentiful, house prices were soaring, and they and the banks thought they could afford to go deep into debt on their mortgages. It’s a different world now.

Income growth is now essentially keeping pace with prices. It is important to remember that the Bureau has reported significant jobs growth over these years, with workforce participation now at record levels. But close to a million Australians are classified by the Bureau as underemployed — mostly people who want to work full-time but can only find part-time jobs. House prices where most Australians live are now falling, and the banks have become much more careful about whom they lend to and how much.

Let’s not criticise them for that: they’re now doing what they should have done in the boom. Even with stricter lending rules, falling house prices are opening up the market to first homebuyers who had previously been priced out. In the second half of 2018, the banks issued 27 per cent more loans to first homebuyers than in the same period of 2016, and lent them 34 per cent more cash. There’s no credit squeeze there.

The crucial question is what happens next: to the global economy, wages and house prices — and hence consumer spending, which usually provides 60 per cent of economic growth. These are big issues I can’t fully explore here, but here are a few thoughts.

The fall in house prices clearly has a way to go, and that’s welcome. Prices in Sydney grew by 85 per cent in the boom, and are still 63 per cent higher than they were seven years ago. Prices in Melbourne grew by 67 per cent in the boom, and are still 52 per cent higher than they were then. What we are seeing is still a correction, not a crash. CoreLogic’s figures show the pace of decline has slowed this year, although it’s anyone’s guess when it will bottom out.

The Reserve Bank is now expected to cut interest rates in the second half of the year. Normally it lifts or cuts rates in the month after the quarterly inflation figures come out — that is, in February, May, August, or November — but the inflation figures have nothing useful to tell us now, and you can understand why the Reserve would not want to be cutting rates in the middle of an election campaign.

The move is now inevitable, and as Macbeth told himself, “If it were done when ’tis done, then ’twere well it were done quickly.” The Reserve’s April meeting is on budget day: hmm, problems in going then. The May meeting will be a fortnight or so before the election, the June meeting a fortnight or so after it. On economic grounds, it should go in April. On political grounds, it might be wisest to wait until June. •

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First, this is a government that campaigned on prioritising small business. The Labor governments of Mike Rann and Jay Weatherill tended to focus on major projects and larger corporate interests, but the state’s economy is dominated by small businesses, which provide more than 80 per cent of jobs and deliver significant export revenue from wine, food manufacturing and tourism. The new government aims to boost this part of the economy — and potentially generate substantial job growth — by granting an exemption from payroll tax to businesses with a turnover of less than $1.5 million and making it easier for them to compete for major government contracts.

The new government’s priorities might align with the structure of the state’s economy, but achieving some of them could prove difficult. Reforming the state’s restrictive retail trading hours, for instance, is likely to boost the performance of major and small retailers, breath vibrancy into Adelaide and regional centres, and raise the profile of the state as a destination for tourists. But the Liberal Party won’t control the upper house, and the premier and his parliamentary colleagues will need crossbench support if they are to deliver more flexible retail hours. This may well prove to be an early test of the new government’s legislative capacities, and one with significant implications for future economic initiatives.

Energy policy is a second major priority. South Australians are all too familiar with rising electricity bills and statistics that show the state as having some of the most expensive electricity in the developed world. The impact of electricity price shocks cannot be overstated:low-income households were confronted by acute energy poverty, and many small businesses struggled under the burden of escalating power bills. Businesses in energy-intensive industries became unviable, leading to all-too-frequent closures and lay-offs and an investment exodus.

The new government proposes to deal with the energy crisis by supporting the federal government’s National Energy Guarantee, by putting $200 million into an electricity interconnector between South Australia and New South Wales, and by subsidising domestic battery storage for 40,000 households. These changes are unlikely to have a short-term impact, but in the longer term they will deliver reputational gains, as the state sheds its image as a place where basic utilities can’t be relied on.

South Australians and SA businesses may have expressed frustration with rising energy prices, but they remain committed to a future in which renewable energy dominates. There is widespread acceptance of the need to transition away from fossil carbon as a source of power, and this may limit how far the new government can go in casting aside prior policies.

Whatever else happens, the new government is likely to oversee a marked change in the nature of the Adelaide labour market. Over the last sixteen years Labor governments have rebuilt large swathes of Adelaide, with one major construction project rolled out after another. Some of the high-profile projects include the Adelaide Oval Redevelopment, a tunnel for the O-bahn, the new Royal Adelaide Hospital, the Adelaide Airport, the construction of tramways, a new rail line to south of the Onkaparinga River, the South Australian Health and Medical Research Institute headquarters, and road projects, including the Northern Connector and the South Road superway. Labor certainly knew how to build roads.

Adelaide has consequently become a city where bright-orange-and-yellow is the new black. Construction workers are everywhere, and while some are employed on private building sites, many work on publicly funded infrastructure projects.

During the election campaign the Labor Party unveiled a further $2 billion in new major infrastructure projects. The Liberal Party responded with just $120 million of new civil works, with most of it to be spent rectifying a questionable design element in a previously funded project. This rollback will inevitably have an impact on the labour market: workers who have been made redundant in the manufacturing sector — Holden workers, first- and second-tier suppliers, and so on — and in mining are likely to find opportunities for employment drying up again.

Workers in the public sector are also likely to be confronted by greater uncertainty. The new government is committed to reducing the size of the public service, and the proposed amalgamation of government departments will inevitably result in the shedding of staff.

A rising unemployment rate is likely to be one of the first substantive economic challenges facing Steven Marshall’s government. Former public servants and those who have spent twenty to thirty years in blue-collar employment can’t readily move to jobs in growth sectors such as tourism, hospitality or agribusiness. This will be a real test for the government, given its campaign focus on stopping the flow of young South Australians to the more vibrant labour markets on the eastern seaboard.

The economies of South Australia’s regions are likely to perform well. Labor, with its core constituency in Adelaide’s suburbs, was often accused of ignoring the regions; a greater focus on non-metropolitan services is likely over the next four years. Improved freight infrastructure, dedicated funding for regions, investment in regional and country hospitals, and additional park rangers are all likely to benefit rural industries and regional centres. Given the strong export focus of many regional industries, these policies may well generate spin-off benefits for the state economy overall.

The swearing-in of the Marshall government signals the beginning of a substantial shift for the state economy. It is a move away from a relatively high-taxing, high-spending approach to government to one that relies on the capacity of the private sector to deliver growth. It represents new opportunities for many businesses and residents, but to convert that potential for growth into real jobs for the long term the government will need to work in partnership with the federal government, local governments, the universities, business groups and individual entrepreneurs. ●

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But in some people’s minds, it seems, the debate about inequality has got tangled up with the rise of minor parties. The economic slump in the Midwest rustbelt clearly played a large part in Donald Trump’s victory in last year’s US election, just as factory closures, high unemployment and stalling incomes have fuelled the growth of the National Front in France (especially the north), the growth of Podemos in Spain and, to a lesser extent, success of the Brexit campaign in Britain. Is the same thing now happening here?

No, argues David Marr, in his recent Quarterly Essay, The White Queen: One Nation and the Politics of Race. Hanson’s support, he claims, is based on her appeal to racists, with a dash of nostalgia. No, implies the Grattan Institute, in a new working paper this week, which argues that regional Australia, where One Nation’s support is highest, has matched the city in income growth and unemployment rates over the last decade.

The Grattan report, say its director John Daley and co-authors Danielle Wood and Carmela Chivers, “is part of broader work at the Grattan Institute trying to understand why the vote for minor parties has risen rapidly over the past decade, particularly in regional electorates.”

They are concerned that the rising vote is “being used to justify all kinds of policy changes such as increased income redistribution, more spending on regional development, tighter migration controls, and more security regulation… based on assumptions about what is really driving voting patterns.” By asserting that the bush is doing okay, the paper is clearly arguing against “increased income redistribution” and against more spending in the bush.

Political analysis of this kind is outside Grattan’s normal area of operations. And this working paper is not an auspicious start. In particular, it seems to be totally unaware that regional Australia — or, at least, regional New South Wales and Victoria — has experienced a long drought in full-time employment, forcing many of its young to leave home to get a decent job.

Let’s look at what we know. It is clearly the case that ordinary Australians are struggling as income growth has slumped and household debt has soared to record levels. It is clearly the case that inequality in Australia has risen sharply over the past twenty years. And it is clearly the case that the vote for minor parties and their numbers in the Senate soared to record levels at last year’s election — and that One Nation’s support in recent Newspolls has soared since the election to an average of 10 per cent.

It would be simplistic to argue that the rise of One Nation and other minor parties is solely the result of declining real household incomes and growing inequality — and I’ve not seen anyone argue that it is. But without solid evidence, it is equally simplistic to argue that the rise of the minor parties has nothing to do with the growing economic pain in ordinary households.

As I pointed out after the election, the main reason for the rising minor-party vote in recent years is simply that there are far more minor parties contesting seats, even if most of them have no prospect of winning. And the main reason for the rise of One Nation this year has been the failure of the Turnbull government to provide decisive leadership, because the Coalition is too divided to allow it and Turnbull has lost the political strength to impose his will on the recalcitrants. By contrast, as voters remarked in the focus groups Fairfax reported this week, Pauline Hanson at least stands for something.

We’ll come back to the politics. My main concern is that we should not reach conclusions on the basis of skimpy statistics, cherrypicked to meet our prejudices. The way to understand statistics in any area is to take the data as a whole, and try to work out what it means.

I have great respect for the work of the Grattan Institute, especially on budget policy, where it has been a rock of integrity. I have great respect for David Marr’s journalism. But as I argued at the end of my previous article, Marr’s claim that economic hardship is not a factor in One Nation’s rise rests on an unrepresentative survey of, at best, seventy-two One Nation voters, too small and lopsided to form the basis of such a sweeping conclusion.

The Grattan Institute has at least gone to the Australian Tax Office and the Australian Bureau of Statistics for its implied conclusion that the bush is doing okay in economic terms. But its focus on the numbers is selective, and hence its conclusions — especially on employment — are misleading.

Grattan’s analysis finds that, based on the ATO’s data on taxable incomes, “income growth per person in most regional areas has kept pace with the average in their state over the past decade.” An accompanying graph implies that, in fact, it was the outer suburbs of the big cities that experienced the slowest income growth in the decade to 2014–15, while the inner suburbs experienced the fastest growth in per capita income.

With two caveats, that is probably true, though puzzling. The 2016 census figures imply the same conclusion. Yet it’s hard to explain. Sure, the mining regions saw big growth in incomes and, to a lesser extent, so did fast-growing inner regional cities such as Geelong, a few coastal regions, and the areas just beyond the city boundary now being settled by urban commuters. But all that still leaves out most of regional Australia. By and large, those who have done best in the past decade are the managers, professionals and investors, and there aren’t many of them in the bush. Researchers will need to look at these figures in more detail to work out what actually happened.

Now, the two caveats. First, the ATO provides two sets of data for this purpose: total income, which is the income you actually receive, and taxable income, which is the income you pay tax on. Anyone who knows the tax stats knows that these two can be very different. Each year when the figures come out, Peter Martin of the Age amazes and infuriates us by detailing how dozens of people with incomes of more than $1 million a year end up paying no tax at all. Why? Because their tax advisers use all the lurks they can to reduce their taxable incomes to more or less zero. If you want to find out about real incomes, taxable income is the wrong measure. It might make no difference to the outcome, but I would like to see Grattan redo its numbers using total income instead.

The second caveat: the first version of the tax statistics is always incomplete, because quite a few taxpayers have yet to settle their tax returns — and they are disproportionately high-income earners.

Even after correcting for these, Grattan’s overall conclusion could well be right, and it will take more work to understand who, where and why. But a second part of the income story is not in dispute — as Grattan points out, urban incomes are significantly higher than regional incomes. In Victoria, for example, the 2016 census found the median income per head in each region was $53,439 for regions in Melbourne (the figure for Whitehorse East, centred on the eastern suburb of Ringwood), which was 24 per cent higher than the median for rural regions ($42,931 in Wangaratta and Benalla). When there is no longer a rising tide lifting all boats, these differences matter more. Those with less income have less scope to adjust when prices outgrow wages.

But you sense that the Grattan Institute wants to play down these differences. It makes only a brief mention of the most authoritative data source on incomes, the Bureau of Statistics’s biennial household expenditure survey, to tell us it shows that “inequality in post-tax incomes has not changed much over the past decade in Australia… post-tax household incomes have become a little less equal.”

Really? The Grattan report doesn’t give the figures. But here they are:

Inequality hasn’t changed much? Of course not — incomes have only grown two-thirds faster at the top than at the bottom. Nothing to see there, move on!

Nor did the report mention the changes in household wealth over the decade, which is a significant omission. Here they are:

If you want to understand the household economy, you can’t ignore wealth — or the vast and growing disparity in its distribution. By 2013–14, the richest 20 per cent of Australians possessed 63 per cent of all households’ net assets; the 60 per cent from the middle to the bottom owned just 17 per cent.

In a decade during which, we’re told, not much changed, the wealthiest 20 per cent of households gained 76 per cent of all the increase in household wealth. The 60 per cent of Australians in the middle and at the bottom shared less than 7 per cent of the gains between them. The top 20 per cent gained 48 per cent of all growth in income. The 60 per cent in the middle and the bottom gained just 32 per cent between them.

It is this growing gap that has put inequality back on the political agenda for the first time since the 1970s. It explains why Bill Shorten and Chris Bowen feel confident that the politics will work for them when they target the rich for tax rises, pledging to close or narrow the loopholes that now allow them to corner such an outsize share of the nation’s income and wealth.

The Grattan Institute then went seriously off track on employment. “Employment outcomes are not obviously different” between cities and regions, we are told. “Income growth and employment rates are not obviously worse in regional areas… Given that people in regions have generally fared as well as those in the cities over the past decade, major parties may need to look beyond income and employment to discover why dissatisfaction among regional voters is increasing.”

Yet no employment figures are quoted in its report. Might I suggest that the reason the authors thought employment rates in the cities and regions were not “obviously different” was in fact that they hadn’t looked at them? Because anyone who did look at them would realise: Gee, Sydney and the bush really are different places!

Here are the figures, freely available from the Bureau of Statistics website. Over the 2016–17 financial year, on average, Sydney had 62.9 per cent of its adult population in work; the rest of New South Wales had only 55.6 per cent. In Melbourne, 62.8 per cent of adults had jobs; in the rest of Victoria, 58.8 per cent.

Moreover, that gap is not in part-time jobs. It is entirely in full-time jobs. In Sydney, 44.9 per cent of adults had a full-time job (or, for the young, a full-time mix of jobs); in the rest of New South Wales, only 35.6 per cent had full-time work. In Melbourne, 42.9 per cent were in full-time work; in regional Victoria, 36.8 per cent.

Pick up the weekend paper next time you’re in a country town, and look at the job ads. With rare exceptions, the majority of them will be offering part-time work. If you’re in a country town and you can’t live on a part-time wage, better head to the city.

In the ten years to 2016–17, the Bureau figures show, Melbourne added 263,000 full-time jobs. The rest of Victoria added just 9000 — fewer than 1000 full-time jobs each year.

In New South Wales, it was similar, though less extreme. In the last ten years, Sydney added 236,000 full-time jobs; the rest of the state just 31,000. Employment outcomes between city and country are very different.

The Grattan Institute looked only at unemployment figures. And yes, they are roughly similar. In 2016–17, averaged out over the year, the real difference was between Sydney (4.8 per cent) and Melbourne (6.1 per cent). It’s another sign that Melbourne’s population growth has seriously exceeded the city’s capacity to cope.

But unemployment figures can be low for different reasons. In Victoria’s labour-market regions, for example, the Bureau of Statistics figures show that the lowest unemployment rate in 2016–17 was in Bendigo (4.1 per cent); yet over the past two years, it says, that region has lost 2200 jobs. Next door in Victoria’s North-West, unemployment is below the national average at 5.1 per cent — yet over the past two years, if you believe the Bureau’s figures, it has lost 8100 jobs, or 10 per cent of its workers.

By contrast, the areas shown as experiencing rapid jobs growth — Geelong, Shepparton and Melbourne’s inner east, outer southeast and outer northeast suburbs — all had higher unemployment rates, of between 5.7 and 6.7 per cent. In regional areas, unemployment rates are no guide to jobs growth.

Why not? Because if people with families or aspirations can’t find suitable work around them, they move. The Wimmera region of western Victoria, for example, has been losing population for decades, yet its unemployment rate is almost always below the state average. The young see no prospect of having a decent career if they stay, so they move.

The census illustrates this. These are the relative numbers of ten- to nineteen-year-olds recorded in Victoria in the 2006 census, and the twenty- to twenty-nine-year-olds recorded in 2016:

The boom in Melbourne’s population of twenty-somethings is mainly due to immigration by overseas workers and students, with migration from the bush and from other states as secondary factors.

But the “rest of Victoria” also includes the university campuses at Geelong, Ballarat, Bendigo and so on. It includes all the young commuters who have settled within 150 kilometres of the big smoke, where land is cheap. Yet even so, that cohort in regional Victoria shrank by 28,126, or 15 per cent, in the decade. The second batch of census figures later this year will give us precise figures, but it’s clear that tens of thousands of young Victorians have moved from regional Victoria, and one can fairly assume that lack of jobs is the main driver.

My sharpest memory of my last trip to the Wimmera was the sad sight of a deserted footy ground, now all weeds and tattered signs, in a small town where there are no longer enough young players to field a team. It was a symbol of the gradual breakdown of communities as the young move away to find work.

And we have seen before that crumbling incomes and social structures in regional areas lead to savage protest votes against governments that give priority to economic “reforms.” Two governments highly regarded by economic reformers lost office in the 1990s because they targeted regional areas for cuts to services, assuming their supporters were rusted on and would never support Labor — only to find that they weren’t, and they would.

In 1991, after three years of austerity stripped benefits from country and city alike, the Greiner government in New South Wales was expected to be re-elected comfortably. Instead, it lost nine seats and pro-Coalition independents lost another three. All but three of the twelve seats were in regional areas — from Bathurst to Port Stephens, from Tamworth to Broken Hill. The Coalition limped on as a minority government for four more years, losing Greiner along the way, then Labor won power for the next sixteen years.

There was a lesson there for Jeff Kennett — and his National Party allies — in Victoria, but being the Jeff he was then, he ignored it. His tough-minded reforms won adulation from business and commentators: scrapping 50,000 public sector jobs, selling off Victoria’s electricity, gas, and country railways, cutting the number of local councils by two-thirds, reducing taxes.

But tens of thousands of jobs were lost in country areas, and the government’s focus was on Melbourne. In the seven years of the Kennett government, in net terms, Melbourne added 242,000 full-time jobs — and regional Victoria lost 7000. Regional Victoria had fewer full-time jobs when the Kennett government left office than it had when Labor left power.

In 1999, Kennett was dumped from office — not by Melbourne, but by regional Victorians. In the big smoke, the Coalition lost only six of the thirty-six seats it had won in 1992. In regional Victoria, it lost twelve of its twenty-six seats, some of which were thought unlosable: Mildura, Gippsland East, Gippsland West. One Nation never took hold in Victoria; these seats were lost to independents, others to Labor. The revolt of the bush cost the reformers office.

Is this sounding familiar? In two weeks’ time, the Bureau will release its updated estimates of inequality. Those who wish the issue would go away will have to deal with the realities. We can learn the lessons of the past, or ignore them and take the consequences. •

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In reality, Scott Morrison is probably even more worried about the prospect of a bust in housing prices, which is becoming more likely with each year that passes without action to remove tax breaks for housing investors. That could push Australia into recession.

And he must be worried that someday the house of cards underpinning China’s rapid growth – the even more rapid growth of poorly secured debt – will collapse, and it might happen on his watch. That could push us into recession too.

But in the context of Wednesday’s national accounts, Morrison is dead right. Australians’ real take-home pay is falling. Real household incomes are falling. And unless some X-factor can turn that around, the likelihood of wage growth rebounding and the economy accelerating to the growth rates of old is farfetched.

And that was the key premise of his budget, delivered just a month ago. It projected that average wage growth would double in the next four years to reach 3.75 per cent by 2020. That looked unlikely then. It looks implausible now.

The key figures in the national accounts were those reporting on wages, welfare and household income. Let’s start with that overall income measure.

Household income grew just 2.8 per cent over the year to March – its lowest growth since the last recession. If it doesn’t sound too bad, remind yourself that the 2.8 per cent was being shared by 1.5 per cent more people, at a time when consumer prices rose 2.1 per cent. If household income grows less than 3.6 per cent, then households in general are going backwards. The detail suggests that some or most have lost significant ground.

Those most at risk are those who depend on wages or welfare. Wage growth over the full year to March was just 2 per cent; by the last six months, it was growing at an annualised rate of just 1 per cent. Again, bear in mind that population growth and price growth mean that household wage growth needs to be 3.6 per cent just to keep wage-earning households where they are. The figures tell us that ordinary Australians are becoming poorer.

And the national accounts confirm that, for the first time in many years, government welfare payments are shrinking. Even in current dollars, social welfare payments in the March quarter fell by $1 billion or 3 per cent from a year earlier. The budget papers confirm the fall, and show most of it has been in family benefits.

For comparison: the average growth in household income from 1994 to 2012 was 6.8 per cent a year. For the past five years, it has averaged 3.5 per cent – roughly half its previous level.

Most of that fall has been in growth of wages and salaries. They still make up just over half of all household income, but their share is shrinking fast. Between 1994 and 2012, total wage growth averaged 6.5 per cent a year. But between 2012 and 2017, it has averaged just 3 per cent a year. In the past year it was just 2 per cent.

Those relying on business or investment income are doing better. But in the past six months, even total household income has grown at an annualised rate of just 1.8 per cent. You can’t build a consumer-driven recovery on that.

I confess that this is not what I was expecting; I thought the worst was over, and we were heading back to something like normal. But that is not what is happening.

There are islands of good growth – rising world prices for iron ore and coal meant the mining companies had a bumper year, farmers have had a good year, and professional incomes seem to be immune from whatever else is happening. But too little of this is flowing down to the mainstream of Australians to keep living standards growing.

That is the big story in Wednesday’s national accounts. And it has huge implications for the way this country works.

For the past thirty-five years, Coalition and Labor governments have tried to rein in the power of the trade unions. They have succeeded beyond their wildest dreams. Unions have been decimated, enfeebled, marginalised – and deserted by Australian workers. As a result, management has more power in workplaces than at any time in the last fifty years.

Without unions to amplify their power, ordinary workers’ welfare is a low priority for today’s short-term managers. Mining profits in the March quarter, for example, soared 504 per cent from a year earlier. The average wage of the miners producing that wealth rose 0.6 per cent. One might think we were living in an African dictatorship.

Forty years ago, there was an imbalance of power in favour of trade unions. Governments needed to tackle that, and on both sides, they did.

Today, there is an imbalance of power in favour of management. Governments need to tackle that, as well as the growing imbalance of power that has given the finance sector a disproportionate share of the nation’s wealth.

The March quarter national accounts show where this imbalance of power is taking us. You can see it in the severely stunted wage growth; the low growth in household incomes, especially wages and welfare; the slowing pace of growth in consumer spending (in volume, up 2.4 per cent year on year in the March quarter, or 0.9 per cent per head); and the sharp fall in the household saving rate, which has shrunk by half in the past five years, to just 4.8 per cent of disposable income.

Translation: household incomes are not keeping pace with household costs – especially for families who have taken on big mortgages, or have had family benefits reduced – and people are responding both by reducing their spending and by saving less (or borrowing more).

These trends explain the macro data, which confirms that the economy is basically treading water. Its output (gross domestic product, or GDP) grew by just 1.7 per cent over the year to March, only a smidgeon faster than the growth rate of the population.

What was generating the growth? By industry, it is surprisingly diverse, as the table below demonstrates. We have seen strong growth in the finance sector, the health sector, mining, the public services, the professions, importing, real estate, telecoms and agriculture. If they represented the entire economy, we’d be booming.

But other sectors are struggling. Take out food and building products, and the rest of Australian manufacturing is in free fall. Over the past two years, its output has shrunk by almost 10 per cent. In the past five years, our output of machinery and equipment has shrunk by a stunning 25 per cent, and that is before the car industry shuts its doors. The reckless policies that caused this deindustrialisation will weaken Australia for years to come.

The construction industry is also shrinking rapidly, partly because mining construction has wound right down, but also because it is now clear that residential construction peaked last year. With the glut of apartments emerging in Melbourne and Brisbane, some apartment towers already approved might not be built for years.

Source: Australian Bureau of Statistics, trend estimates

In state terms, the growth pattern has shifted subtly. Western Australia appears to be nearing the end of its long descent, but Queensland has begun a recovery. Activity in New South Wales, the star economy a year ago, has slowed markedly since. Victoria and the ACT are now clearly the strongest-growing economies, with South Australia and Tasmania also picking up pace – and, indeed, outpacing Victoria in growth per head.

In spending, the dynamo driving growth in the past two years has been foreign spending on our mining exports; unfortunately, mines these days are capital-intensive, foreign-owned operations that employ few workers, and much of the benefit of that growth ends up with foreign shareholders.

Net exports (exports minus imports) generated more than a third of the growth in total spending in the past two years. Federal government spending on its own projects is also booming – because the government has spent any money it has saved – and infrastructure spending too has rebounded from the nadir it reached after two years with Tony Abbott as prime minister.

Yet little of this growth has flowed through to workers – and that’s the problem. Not only are we failing to spread the benefits of growth, but if households are under financial pressure, they will be less likely to spend and invest, which means firms will be less likely to hire and invest, which means economic growth will continue to stagnate.

Even on the smoothed trend figures, wage compensation per employee has fallen by roughly $4 a week since the middle of last year. This reflects the drive by employers to economise on labour costs by replacing full-time jobs with part-time ones. In the year to April, two-thirds of all jobs created were part-time, and total hours worked in the economy grew just 0.6 per cent.

The wages share of national factor income has shrunk to 51.5 per cent, the lowest level since 1964. In the past two years, just 28 per cent of all income growth has gone to wage and salary earners, whereas 49 per cent has gone to corporate profits, and a surprisingly large 13 per cent to unincorporated small businesses. Those are extraordinary figures.

If this were just a passing phenomenon, it would be of minor interest. But if this reflects the way of the future – and as noted, wage growth has been severely depressed for five years – we have a serious problem with income distribution. Our political leaders, on both sides of politics, must acknowledge it, and make reforms to correct it.

It has been exacerbated by the cuts to welfare benefits. The national accounts show quarterly welfare payments to households have shrunk 3 per cent over three quarters. It’s probably not the first time they’ve fallen, but it’s probably the first time they’ve fallen while growth in employment and wage and salary income is so weak.

If you search hard enough, the budget papers confirm this. They project that total welfare payments will fall by $1.63 billion, or 1.25 per cent, in 2016–17, and will grow just 0.4 per cent in 2017–18. The big cut has been in family benefits, which are projected to shrink by $3 billion, or 8.5 per cent, as part of the bipartisan project to turn what was once a universal benefit to parents into a benefit for those on low incomes only.

Student assistance is projected to shrink by $280 million, or 8 per cent, and by much more in future years, but only if the Senate agrees to the government’s higher education changes, which won’t happen. The cuts to family benefits are real. However desirable they may be in helping to fix the budget deficit, they are happening when families can least afford them.

If we’re not prepared to raise taxes to pay for welfare benefits, then it makes sense to cut them; the government still spends $1.09 for every $1 of revenue. But welfare cuts are contributing to the shrivelled growth in household income that has become one of the three key problems facing the economy, along with the house price bubble and China.

After five years of that shrivelled growth, the evidence suggests that Australia is no longer able to ensure that the benefits of growth flow fairly throughout society. Ensuring fairness is now an economic problem as well as a moral one. •

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As mayor of Tatiara District Council, the “good country” around Bordertown in the southeast corner of South Australia, the former shearer is keen to get things right. He doesn’t want the mayor’s mangling of their names to be the dominant memory of becoming Australian for these four new citizens.

“Beepa Masho Mangooka,” he says, somewhat tentatively, perhaps conscious that he has an audience. I am watching artist and film-maker Malcolm McKinnon record Graham’s efforts from the corner of the room. Sitting opposite the mayor, the council’s executive assistant, Mandy Clarke, is encouraging, though she points out that Bipamacho Mbanguka’s first name should not be broken up with a pause. “Beepamasho,” he tries again, and she nods approvingly.

Mandy has taken the trouble to ask each of the candidates how their names are pronounced, and has written them down phonetically for the mayor. She’s been careful to check if they’re happy to be photographed for the Border Chronicle and to find out if anyone has any dietary restrictions, religious or otherwise, before ordering catering from the cafe up the road. She’s also provided each candidate with an advance copy of the citizenship oath so they can prepare and won’t be embarrassed by stumbling over words.

In the council chambers across the hallway, everything stands ready. The four certificates are laid out in order in crisp white envelopes, each accompanied by a commemorative $1 citizenship coin from the Perth Mint and a complimentary ticket to the Royal Adelaide Show. The Australian coat of arms and a portrait of the Queen are displayed as legally required, and a laptop and projector set up with a karaoke-style, singalong version of the national anthem. In the side room, where refreshments will be served, gift baskets for the new citizens are packed with Australian goodies – peanuts from Queensland, pure Australian honey, banana bread and the inevitable jar of Vegemite.

Mandy has checked and doubled checked the arrangements, but she’s still a touch anxious. “I’m always a bit nervous before a citizenship ceremony,” she admits. “Things can still go wrong.” She remembers a pre-digital accident when they played God Save the Queen instead of Advance Australia Fair because the cassette had been put in the player the wrong way around. There was nothing to do but let it run to the end and then switch the tape over.

“People get very excited about their citizenship ceremony,” Mandy says. “Some of them get quite teary. They feel free, liberated, now they are Australian citizens.” This evening’s four candidates are all from different countries in Africa: Yakob Tesfay Sultan from Eritrea; Saieed Mohammed Taha from Sudan; Ninneh Gowah Dewee from Liberia and Bipemacho Mbanguka from Congo. Ninneh and Bipemacho – known to locals as Morrison and Angel – are a couple. They have a toddler, Daniel, and a baby on the way.

“It will be interesting to see if the African lady comes in traditional dress,” says Graham. “The Filipinos normally come very well dressed. Even the little kids. Girls in new dresses, boys in suits and ties.” Although he’s been mayor for less than two years, Graham is already something of a veteran when it comes to citizenship ceremonies. “A little while back we had a lot of Filipinos,” he says. They had been recruited on temporary 457 skilled worker visas to work at the local meatworks. After their visas came to an end, the owners, Brazilian conglomerate JBS, made good on its promise to sponsor them for permanent residency. The final line in the company’s mission statement is “the certainty of a better future for all our employees.”

Bryan and Loreen Fuentes are beneficiaries of the JBS policy. Theirs is one of the many stories Malcolm has documented in Bordertown. The couple were living in Albany in Western Australia and working in an abattoir owned by a different company, their two young children left behind in the Philippines in the care of relatives. When Bryan’s 457 visa was about to run out, the meatworkers’ union helped him to find an alternative employer who would also sponsor him for permanent residency, or PR. JBS needed fifty workers, so “all up,” Bryansays, counting partners and children, “125 people ended up coming to Bordertown, chasing for the PR.”

Loreen and Bryan Fuentes: separation from their son and daughter lasted “only” a year. Malcolm McKinnon

Bryan had moved to Australia in March 2006, when Loreen was pregnant. Luckily, the meatworks shut down for maintenance every year in July, so after three months he was able to return to the Philippines for the birth of his daughter, and return annually after that to celebrate her birthday. Sometimes he got to go back a bit earlier, in June, so he could celebrate his son’s birthday too. Bryan spent his first three-and-a-half years in Albany alone, before bringing Loreen, but not the children, out to join him.

“We didn’t want to bring the kids to Australia on a visa that is not secure,” says Loreen. Their Australian friends are shocked at this, but Loreen says this is “not a strange thing to us.” More than ten million Filipinos live outside their homeland; many are “guest workers” on fixed-term contracts in places like the Gulf States or Singapore, which don’t allow them to bring family members with them. Others are undocumented migrants, living below the radar in rich countries like the United States, where they often work as housekeepers, caring for other people’s children but never getting to see their own kids grow up. They can’t go home, even for a holiday, for fear that they will not get back into the United Sates if they leave. Their families depend on the money they send home. Overseas workers remit around US$30 billion to the Philippines every year.

As a child, Loreen never saw much of her own father because he was a merchant seaman and often away at sea. For Bryan and Loreen, the separation from their son and daughter lasted “only” a year. After they moved to Bordertown and their pathway to residency became clear, they brought out the children too.

Loreen’s first impressions of Bordertown were not great. She had flown into Adelaide in the daytime and thought the city looked grand. She had no idea that Bordertown – population 2800 – was another three hours away by road. “We arrived on a bus in the dark,” says Loreen, “and there was no one in the streets.” To their surprise, they discovered that there was already a small but established Filipino community in the town – mostly Filipinas who had married Australian men. “They held a welcome party for us so we felt at home straight away,” says Loreen. Speaking good English and attending church helped them to establish connections with the broader community.

Now, after six years, the family are all Australian citizens and settled in a brand new brick house. Bryan coaches a local basketball team and sits on the kids’ school council. They still miss the Philippines, especially family. “It’s like we’re half Filipino, half Australian,” says Loreen. “The Philippines is my home. I’m still adjusting here,” says Bryan. But there is no going back. “Dreams are possible here in Australia,” says Loreen.

This story isn’t unique to Bordertown. As the latest immigration department statistics show, “skilled meatworker” is the second-top occupation for 457 visa holders in South Australia, and the sixth-highest occupation grouping for 457 visa holders in Queensland. So versions of Bryan and Loreen’s story are being played out in Murray Bridge and Rockhampton, and probably also in Cobram, Scone, Albany and elsewhere around the nation. In Australia, there are many bordertowns.

With around 470 staff, the JBS meatworks is Bordertown’s biggest employer. Almost two-thirds of its workforce are migrants. But unlike the Filipinos who come as skilled employees on temporary 457 visas, many of the newer members of the company’s labour force are asylum seekers and refugees who mostly arrived in Australia by boat. Plant manager Trevor Schiller says these workers are crucially important to the business: “From a regional point of view, Bordertown has low unemployment and without the migrant workers we probably wouldn’t operate,” he told the Border Chronicle in June this year.

Slaughtering and processing up to 8000 animals a day, the JBS plant helps keep local farming prosperous, supplying Australia and the world with Halal-certified lamb and mutton. Not only that, but by spending their wages in local shops, renting local houses that might otherwise sit empty and using local services, the plant’s migrant and refugee workforce help the town itself to thrive. In direct contradiction of immigration minister Peter Dutton’s federal election claim that “illiterate and innumerate” refugees would “take Australian jobs” or “languish in unemployment queues,” Bordertown’s migrants are not only working but also creating and sustaining jobs for local workers.

The largest group of refugees in Bordertown are Hazara, an ethnic minority from Afghanistan and Pakistan. As Shia Muslims, they have suffered persistent persecution, particularly at the hands of the Taliban and other Sunni militias. Alongside them are refugees from Iran, Sri Lanka and various countries in Africa. In fact, at least twenty-three different cultures are represented in Bordertown, and most have been drawn by jobs, especially at the meatworks.

The Australian Migrant Resource Centre recently opened new premises in the main street to provide a place to socialise, as well as practical support including English-language classes and help with such things as opening bank accounts, understanding phone bills, registering for Medicare, filling out the census form and dealing with Centrelink. Often another refugee with better English will act as a volunteer interpreter in such situations. Since there are no registered migration agents in Bordertown, centre staff can sometimes spend hours on the phone as the intermediaries between refugees and Adelaide-based migration lawyers or immigration department officers in Canberra.

An English-language class at the Australian Migrant Resource Centre in Bordertown. Malcolm McKinnon

Some of the refugees and asylum seekers working at JBS have already been in Bordertown for four years, but unlike Bryan and Loreen Fuentes, they mostly remain unsettled. Many will find it difficult, if not impossible, to truly establish their lives here. The pathway to Australian residency from a 457 visa may be uncertain and precarious, but for many refugees such a pathway is all but non-existent.

In late 2014, the Abbott government reintroduced Temporary Protection Visas, or TPVs, for refugees who arrived by boat, a measure that affected the “legacy caseload” of around 30,000 asylum seekers who had arrived under the Gillard and Rudd governments but whose refugee claims had still not been processed. TPVs last only three years; after that time, claims for protection are reassessed. If refugees still face persecution in their homeland, they’re granted another three-year temporary visa. The same process is repeated three years later, and so on, ad infinitum. Temporary visa holders can’t sponsor family to join them in Australia, so if they have left a wife and children behind in Afghanistan, or in a refugee camp somewhere, as many of these men have, then they will be separated from their loved ones indefinitely, perhaps forever.

The only glimmer of hope they have of a settled life in Australia came courtesy of the mining magnate and one-time federal MP Clive Palmer. Recognising that many regions suffer severe labour shortages, Palmer convinced the Abbott government to create a second type of temporary refugee visa, the SHEV, or Safe Haven Enterprise Visa, to attract refugees to jobs in rural industries. This visa lasts five years rather than three, and holds out the slim prospect of permanent residency if a refugee works or studies in a designated regional area for at least three-and-a-half years without accessing any Centrelink payments during that period.

To become a permanent resident, though, a refugee on a SHEV will still have to jump through many more hoops. Usually this means meeting the criteria for skilled migration – that is, having a qualification or trade that is in great demand in Australia – as well as meeting age, health, character and high-level English-language requirements. As Scott Morrison (then immigration minister) put it when the visa was introduced, “this is a very high bar to clear” and the opportunity for refugees to move from a SHEV to permanent residency is “very limited.” Three-and-a-half years as a diligent process worker on the floor of a meat packing plant won’t make the grade. As things stand, the “temporary” visa system condemns most people who arrived by boat to a life of permanent heartbreak, loneliness and uncertainty.

Some refugees, like twenty-year-old Mujtaba Peyvandi, known as MJ, are luckier, having arrived earlier, when permanent protection visas were still being granted to “illegal maritime arrivals.” MJ was a teenager when he came to Bordertown. He spoke little English but learned quickly and was excited that he would finally get a chance to go back to school and continue his interrupted education. “I really wanted to study,” he tells Malcolm in an interview. “I want to go to uni. I want to be a lawyer or a senator and go into parliament.” MJ says his heroes are Martin Luther King and Anne Frank, “people who have done things that changed history.”

“Very high ambitions”: Hazara refugee Mujtaba Peyvandi. Malcolm McKinnon

MJ secured an afternoon shift at JBS so that he could attend school from 8am to 3pm and then process and package lamb at the meatworks from 3pm to midnight. It didn’t last; not because MJ lacked the stamina for such a punishing schedule but because market conditions forced JBS to reduce staff and change its roster; for now, the meatworks only operates a single day shift and for family reasons MJ has to prioritise earning over learning. MJ’s mother, father and two siblings all work at JBS. “People say to me that ‘Oh, you guys must be rich,’ but we’re not,” he says. The family, who are now Australian citizens, live simply and put every spare cent towards the cost of bringing other family members to join them in Australia. So far, they have managed to bring out one brother and his family at a cost of tens of thousands of dollars.

In his spare time, MJ volunteers at the Migrant Resource Centre, interpreting for other, usually older, Hazara refugees, helping them fill out forms or accompanying them to the bank or the doctor. Compared to the city, he says, Bordertown is quiet, safe and affordable. “Everyone here is really friendly,” he says. “People are not racist.” Yet MJ thinks that the best he can hope for in the town is to become a skilled worker at JBS, a slaughterman or a boner, who get paid the highest rates. He believes that he will have to go elsewhere to achieve his “very high ambitions.”

On my brief visit to Bordertown I don’t get to visit the meatworks itself, but Malcolm shows me the photographs and videos he has shot inside the plant. It is a highly regimented, highly efficient production line from the moment a stunned sheep slides down a chute to have its throat expertly slit right through to the cling-wrapping of rib roasts and chops ready for the supermarket shelf. In between, huge hydraulic shears sever heads from torsos in one massive cut, and rapidly spinning horizontal blades slice through backbone to separate forequarters from hind. There are stainless steel surfaces, white plastic tubs lined with blue plastic sheets, rubber conveyer belts, hooks and knives, and everywhere constant motion.

Men and women work side by side, adorned in white coats or aprons, white hard hats, blue gloves, black earmuffs, plastic sleeve protectors, hairnets and safety glasses. They labour in steady, focused, non-stop movements – an intense, repetitive dance to match the squealing, clunking music of the machinery. Despite the inevitable blood and guts, I am surprised that the messy work of butchering can appear so clean and orderly.

The facial characteristics of the workers reveal a wide diversity of backgrounds, but the intensity of the work and the muffling of eyes and mouth leave little opportunity for conversation. While people work closely together, it is hard to imagine how they could form connections and emotional bonds. MJ says he has made friends in the lunchroom, but even on breaks there are barriers of language and exhaustion to overcome. Outside work, there is also a risk that locals and migrant workers will lead parallel lives.

Bordertown is a small, conservative town. It has a stable population whose family attachments to the Tatiara often stretch back generations. According to the 2011 census, more than 80 per cent of the town’s population was born in Australia, and 75 per cent of  residents had two Australian-born parents (compared to an Australia-wide average of 54 per cent). When newcomers arrive, they generally establish social connections through sport, school and church, but this can take time, even for Australians. Newly arrived refugees are unlikely to play cricket or AFL football, and many are single men without children at school. If they are from a Muslim background, they won’t attend church and they generally won’t drink, which means the social lubricant of alcohol is also not available.

Not that Bordertown is a hostile environment. There are occasional outbursts of anger and misunderstanding, like the time when a local worker “lost it” and became abusive at a meeting at JBS because he objected to everything being translated into other languages for migrant staff. There is some low-level anxiety about the fact that many of the refugees are Muslim. Overall, though, after numerous visits to Bordertown in recent months, Malcolm thinks the lack of connection between locals is not a product of rudeness, racism or fear. Rather, he has gained the impression that many locals don’t reach out to the newcomers because they see the migrants as “just passing through.” Added to this is uncertainty about how to breach the cultural gulf.

Spiro Tsaousoglou shares this view. He says that locals are generally “very accepting” but “don’t know how to make connections.” Spiro migrated to Australia as a baby from the Greek island of Rhodes and has lived in Bordertown for fourteen years, running an IT business. When locals kept asking him how they could come to meet the recent arrivals, he responded by setting up social soccer games. In an on-camera interview, he tells Malcolm that he wanted to be able to put his arm around a refugee’s shoulder and ask, “How was your week?”

Spiro knew he needed to create an environment that would make such interactions possible. Since soccer is “a universal currency,” he uses the games to “create an atmosphere for anyone to be able to come and join in and not have to step on unfamiliar ground.” With up to forty people turning up to play, there are now two matches every Sunday. “Everyone has a need to be ‘friended,’ to be part of the community; we all want to be accepted,” says Spiro. “We just have to put ourselves into their shoes. If we had to migrate and move over to their country, how would we want to be treated?”

Other Bordertown residents are also reaching out to the strangers in their midst in ways that give expression to country hospitality, Christian kindness or their own experiences of arriving as an outsider.

Pat Martlew, a local woman mindful of her own experience as a migrant from Britain many years ago, organises weekly in-home English classes and lunches for newly arrived migrant women who are at risk of social isolation. Retired farmer Denis Russell is a volunteer English-language teacher at the Migrant Resource Centre who sees his involvement as an act of receiving as much as giving. “It’s very rewarding,” he tells Malcolm on camera. “I’m discovering a lot of things I didn’t know.” Denis, a lover of fine food, has formed a close friendship with a particular refugee who now cooks him elaborate Iranian meals once a week.

Former midwife Pam Copping and retired teacher Gwen Fisher pair up to run a weekly class to help refugees and other recent migrants prepare for the Australian government’s citizenship test. “Much of it I didn’t know myself,” says Gwen. Citizenship is a necessary step for refugees to bring immediate family members to join them in Australia, and Pam recently witnessed a father from Afghanistan being reunited with his wife and children after many years’ separation. “It’s just so beautiful to see,” she says. It made her feel “so happy and so good.”

Refugees on temporary protection visas are forever denied such joy, but even those on permanent visas are finding this cherished goal has is being pushed out of reach. It is technically possible for a refugee on a permanent protection visa to sponsor family members, but such applications are given the lowest priority for processing. In other words, they never make it to the top of the bureaucratic pile. That is why citizenship has such a high priority for recently arrived refugees. Once they have citizenship, they can get their families here faster.

But even refugees with permanent status are encountering barriers, because the government is deliberately delaying applications for citizenship from refugees who came as “illegal maritime arrivals.” They might meet all the legal requirements for citizenship, having lived in Australia on a permanent visa for four years and passed the citizenship test, but they can’t be confirmed as citizens until they attend a citizenship ceremony and swear the citizenship oath.

Thousands of refugees are queued up, waiting for their invitation to attend such a ceremony. The immigration department says it reaches a decision on 80 per cent of citizenship applications within eighty days, yet a survey of hundreds of refugees by the Refugee Council of Australia in October 2015 found they had been waiting an average of 215 days for an invitation to attend a citizenship ceremony. Some had waited more than 600 days. Two Hazara refugees have now challenged the immigration minister in the Federal Court for not exercising his powers within a reasonable timeframe. The case was heard in July but a decision is yet to be handed down.

The damage done by indefinite delays to citizenship applications mirrors the emotional and psychological harm done by temporary protection visas. Refugees who came as single men and left wives and children behind in their homeland or in a refugee camp are unable to get on with their lives. As long as they are separated from their immediate family, it is very difficult for them to settle. This contributes to the gap between refugees and locals by preventing the new arrivals from forming lasting ties to Bordertown. Until their family is reunited, they can’t put down roots here or anywhere else.

Back in Woolshed Street, Malcolm and I join friends and relations on the lurid green chairs at the rear of the wood-panelled council chamber. Resplendent in dress shirt and waistcoat, Morrison and Angel’s toddler son Daniel is wandering happily about the room, finding himself in constant demand for photographs. His parents are also dressed to the nines. The ceremony goes smoothly and then there is much happiness, laughter and many more photographs over tea and sandwiches. I meet ninety-six-year-old Arthur Milne, who used to cultivate the land where the JBS meatworks now stands. He can remember working with draught horses, and the good years with plenty of rain after he returned from service during the second world war. He welcomes migrants coming and says they keep the town alive.

On the edges of the gathering, though, there is sadness. Citizenship ceremonies in Bordertown are usually held together with council meetings, but this one has been timed specially to coincide with Pam and Gwen’s weekly citizenship class at the Migrant Resource Centre. They wanted their students to come along and witness proceedings so they know what is involved when – or if – their own turn comes.

I chat to one of the participants in the citizenship class, a dignified Hazara man who arrived in Australia in 2010. He spent almost two years in detention in Curtin and has now lived in Bordertown for four years, working at JBS. He hasn’t seen his wife and young son for six years, and tells me he dreams of bringing them to join him in Bordertown “so we will live together as a family.” With deliberate and persistent effort, he has learnt excellent English. He has been granted a permanent protection visa and is ready and qualified to become a citizen, but he fears it won’t happen for a long time yet, if at all. He says some friends submitted their applications eighteen months ago and are still waiting for an invitation to a ceremony.

Australia’s border protection regime doesn’t just involve airport immigration officers and coastal patrol vessels. It doesn’t stop at Christmas Island or Manus or Nauru. It reaches deep into the Australian countryside, into rural industries, regional centres, council chambers and even human hearts. In Australia, every town is a bordertown. •

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