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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In the early 2000s, the mining boom gave us full employment without any need for it to be an objective. But concerns that policy was not doing enough to deal with joblessness returned in the 2010s: with slower economic growth, the unemployment rate remained fixed in a range between 5 and 6 per cent without bringing forth any deliberate action by policymakers to shift it lower.

All the signs, however, are that the 2020s will be a new era of emphasis on full employment. The federal government’s 2022 Jobs and Skills Summit gave priority to the goal of achieving full employment. And in April this year the government immediately accepted the recommendation of the Reserve Bank review that the bank “should have dual monetary policy objectives of price stability and full employment, with equal consideration given to each.”

Achieving full employment — ensuring that the maximum possible number of the nation’s available workers are employed in jobs for as near as possible to the number of hours they want — has two main benefits. It maximises national output, and hence overall living standards. And it significantly improves equity, by lifting the incomes of people who would otherwise be unemployed and on income support, or are underemployed.

Pushing employment as high as possible also has the greatest benefits for the people who find it hardest to get work, including lower-skilled workers, the young, and people living in disadvantaged regions.

With Australia’s low unemployment rate of 3.5 per cent these equity benefits are on full display. Just one example highlights the point: in the 25 per cent of regions that had the lowest proportion of employed people before the pandemic, the employment rate grew by 2.2 percentage points in 2022 — about three times more than in the 25 per cent of regions with the highest employment rates.

The benefits of employment are, of course, broader than income. As Treasury secretary Steven Kennedy has emphasised, “working is associated with better mental health and lower rates of psychological distress [and] strong intergenerational benefits [because] children with parents who work are more likely to work themselves.”

All this might suggest that our objective should be to have everyone who wants to be employed in a job working exactly the number of hours they want — effectively abolishing unemployment and underemployment. But it’s universally accepted that’s not going to be feasible.

The labour market is in continual flux. For most new workers, looking for and finding a job takes time. Similarly for workers who lose their jobs, and often also for those who leave a job. Inevitably, at any point in time, some of the available workforce won’t be in work.

The costs of pushing employment growth too far also impose a limit. More of the available workforce in employment means less spare labour available to fill new jobs that are created, forcing employers to compete for workers by offering higher wages. Historical experience tells us that eventually wage inflation will become excessive, imposing major costs.

High wage inflation cuts off jobs growth. It also feeds into higher price inflation, making society worse off in other ways: the cost of living rises, the wealth of savers is reduced and economic activity is destabilised (including by the likely policy response of higher interest rates).

Setting a full employment objective is a balancing act. We want to use as much of the available workforce as possible to benefit national output and equity. But we want to avoid excessive wage inflation. The critical decision is what rate of unemployment achieves that balance. Many commentators see the trade-off resulting in a jobless rate of more than 4 per cent. But if I were setting a full employment objective at present, I’d be aiming for close to the current rate of 3.5 per cent.

Maintaining this rate would generate substantial benefits for national output and equity, compared with going back to our average rate of 5.5 per cent through the 2010s. Wage inflation has not been excessive at this rate of unemployment, either at present or on the other recent occasion when the rate of unemployment fell to about the same level, during the mining boom of the late 2000s. While wage inflation has picked up in recent months, much of this can be attributed to efforts to compensate for high price inflation rather than the effects of a tight labour market.

Fears that our low rate of unemployment could take us back to the spiralling inflation of the 1970s therefore don’t seem well founded. The Australian labour market is a different place today. Reforms to the wage-setting system in the early 1990s — primarily the shift to enterprise-level bargaining — and the fall in price inflation since that time have enabled unemployment to fall further before provoking concerns about wage inflation.

So far I’ve been talking about a full employment objective expressed as a target rate of unemployment, which is how it is usually thought of. But the shift back to a full employment objective also gives us an opportunity to consider whether that’s the best approach.

An alternative would focus on labour underutilisation, which takes in both unemployment and underemployment. We want people to have a job, but we will only make the fullest use of their labour if they are also working the number of hours they want. This matters because underemployment is an increasing share of labour underutilisation. By 2022, of the extra hours that could have been worked in Australia, about 45 per cent were a result of underemployment.

Having a broader measure also matters for how low we think it’s possible to push the rate of unemployment. More underemployment means the economy has greater spare capacity than the raw unemployment figures show. Wage pressures are therefore not as great as they have been at any given rate of unemployment. In this environment, holding down the unemployment rate poses less of a risk for wage inflation. It’s another reason why a target rate of 3.5 per cent is realistic.

In the short-term, existing Australian Bureau of Statistics data could be used to calculate underutilisation among members of the labour force. Longer term, a measure could be developed that also encompasses spare capacity among people not currently in the labour force.

Working to achieve a specific target for full employment means policy is directed towards improving wellbeing; and having a target that is easy to communicate also creates accountability.

Yet, it’s important to recognise that, even if the overall target is achieved, some groups will still be missing out to an unacceptable degree: First Nations people, people with disabilities, people living in disadvantaged regions, and other groups. So, beyond an overall target, goals to improve employment outcomes for those groups are an essential element of a full employment objective. •

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Unlike any government for many decades, the Labor government explicitly committed itself to full employment. In opposition, Anthony Albanese promised to hold a jobs summit and commission a white paper on full employment. No doubt deliberately, the fact that it would be a “White Paper” called to mind the founding document of postwar Australian prosperity, the 1945 White Paper on Full Employment in Australia.

Commissioned by John Curtin’s wartime Labor government and written by a team led by economist H.C. “Nugget” Coombs, the 1945 paper used John Maynard Keynes’s economic model as the basis for a commitment to use taxes and spending to maintain full employment.

At the same time, the Chifley government turned the Commonwealth Bank into a modern central bank. Having refused to help save the economy during the Great Depression, the bank would now be explicitly focused on maintaining full employment. Coombs was appointed governor, and retained the position after Robert Menzies’s Liberals took government.

Later, still under Menzies, the Reserve Bank Act of 1959 split off the commercial functions of the Commonwealth Bank and created a new Reserve Bank of Australia with three statutory objectives: price stability, full employment and general prosperity.

Changes in monetary policy were also in prospect when Albanese and his colleagues took government last year. The shift to inflation targeting in the early 1990s, implemented using adjustments to central bank lending rates, had put the Reserve Bank in full control of macroeconomic policy. Like other central banks, it reinterpreted full employment to mean the “non-accelerating inflation rate of unemployment,” or NAIRU, a model-based construct derived from the work of Milton Friedman. (Friedman preferred to call this the “natural rate” of unemployment.) Estimates of the NAIRU aren’t stable (they are usually above the actual rate of unemployment), but have recently been near 4 per cent.

Events since the global financial crisis have challenged the belief that inflation targeting can ensure financial and economic stability. For much of the decade after 2008, central bank interest rates were stuck at or near zero in most countries. Australia was heading in the same direction, with the cash rate down to 0.75 per cent, when the pandemic hit. Responding to this and other unexpected developments, the new government commissioned a review of the Reserve Bank.

The stage seemed set for a return to the policies that gave us the postwar Golden Age. But it didn’t take long for the lights to dim. The jobs summit turned into a “jobs and skills summit” dominated by employers complaining about “skills shortages.” It wasn’t so much a shortage of specific skills; rather, employers had come up against the fact that full employment makes it as hard for an employer to fill a vacancy as it is for a worker to find a job.

Then the word “Full” disappeared from the title of the Albanese government’s Employment White Paper, which is still a work in progress. True, maintaining full employment still appears at the head of the list of objectives, but discussion so far suggests it will get short shrift when the white paper actually appears.

When it was released last month, the Reserve Bank review reflected a similar tendency. Most attention was focused on internal restructuring, while the desirability of a higher inflation target and other issues were kicked down the road. Discussion of the full employment objective in the bank’s charter was limited. Most damagingly, the review recommended removing the treasurer’s power to override decisions of the bank via an announcement to parliament. Although it has never been used, the existence of this option was central to the integrated operation of fiscal and monetary policy in the decades before the shift to inflation targeting.

And, finally, we come to the budget. The scene had been set by the report from the government’s new Economic Inclusion Advisory Committee, which recommended a large increase in the poverty-level JobSeeker benefit and a commitment to full employment. Labor treasurer Jim Chalmers immediately signalled that the first of these recommendations would be rejected as both unaffordable and politically unpopular.

Eventually the government was shamed into a modest increase in JobSeeker, but full employment disappeared from the agenda. The budget projected an unemployment rate of 4.5 per cent — exceeding estimates of the NAIRU, let alone any measure of full employment based on actual labour market outcomes (such as requirement that there should be as many vacancies as unemployed workers). During his budget speech Chalmers described the rate as “low by historical standards,” effectively confirming that his benchmark is the last fifty years of failure rather than any notion of full employment. He then returned quickly to the central theme of the government’s policy, the need to reduce inflation.

Even this short period of full employment has had hugely beneficial consequences. Workers who previously have been dismissed as unemployable have suddenly found employers willing to take them on. Remote work has persisted since the lockdowns because employers who demand five-day attendance lose workers and can’t find replacements. Even more radical ideas like the four-day week are gaining traction.

With luck, and full employment will persist a little longer. But if it does, no thanks will be due to this Labor government. •

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The report’s “highest” and “immediate” priority” was for a large enough increase in JobSeeker to significantly reduce poverty among the unemployed. The right amount, it suggested, would be 90 per cent of the age pension, or an increase of $256 a fortnight.

The government has responded by increasing the rate by just $40 a fortnight, or $2.86 a day. Yes, it did some other things — a slightly increased rate for unemployed people aged between fifty-five and sixty, an increase in rent assistance by $31 a fortnight, more money for single parents with children between eight and fourteen, incentives for more bulk-billing under Medicare, and help with energy bills. That will make a difference, but not — with the exception of the single parents’ payment and perhaps some people’s energy bills — a substantial one.

The increase in JobSeeker and the youth allowance will cost an estimated $1.3 billion next financial year out of an expected $668 billion in total revenue. Despite the professed concern about the impact on inflation of pushing more money into the economy, the inflation rate is coming down, the economy is slowing and the budget has been taking more money out of the economy than it is putting in.

No doubt the government believes it got the politics right. I mean, what were the members of the advisory committee thinking by suggesting such a huge increase in JobSeeker? Even $40 a fortnight was far too high in the eyes of people like Robert Gottliebsen, who wrote in the Australian that “it is particularly galling to see able-bodied younger people gaining extra money to pursue a non-working lifestyle at a time of labour shortages.”

How can a committee of experts possibly compete with such deep-seated prejudices, and with a government that feels it must indulge them?

It was ACT independent senator David Pocock who secured the government’s commitment to set up the Economic Inclusion Advisory Committee during the negotiations over industrial relations legislation last November. He called it a “game changer” for people living below the poverty line, especially as the government agreed that the committee’s expert advice about how the most vulnerable are faring “and what needs to change to ensure we don’t leave them behind” would be released publicly before each budget.

The government honoured the promise, appointing a stellar cast of committee members. At their head is Jenny Macklin, a former Labor minister with a legacy of major reforms (including the National Disability Insurance Scheme) and a record as a researcher and expert adviser on health and welfare issues extending back to the Hawke era.

She was joined by leading academic experts in relevant fields, including Professor Peter Whiteford on welfare payments, Professor Jeff Borland on the labour market and Associate Professor Ben Phillips on inequality. Then there were representatives of the major interest groups, including the Australian Council of Social Service’s Cassandra Goldie, the ACTU’s Sally McManus and someone even Mr Gottliebsen couldn’t place among the usual suspects — Jennifer Westacott, head of the Business Council.

The government shouldn’t have been surprised by the committee’s findings. Yet it did its best to bury the report, sneaking it out late in the day, distracting attention to other issues and writing Pocock out of the script.

This response wasn’t just part of the annual political ritual of lowering expectations before the budget. Treasurer Jim Chalmers had clearly decided that tackling what the report called the “serious inadequacy” of payments to the unemployed was not sufficiently important.

As its track record shows, Labor has higher priorities than that, such as politics. It didn’t get around to increasing unemployment benefits when it was last in government. Then, in opposition, it remained sufficiently unmoved by evidence that the unemployed couldn’t survive on the prevailing rate of $40 a day as to promise no more than a review in government.

Even that commitment was dropped before the last election. It was left to the Morrison government to provide a permanent $50 fortnightly increase ($10 more than in this budget) following the withdrawal of the Covid emergency payment.

Labor’s attitude stems from deep-rooted myths about unemployment. In the words of the Grattan Institute’s Danielle Wood, the myths’ most pervasive image is “a work-shy twenty-something playing video games in their parents’ basement.” The same attitude convinced the Morrison government it was on a winner with its ill-starred robodebt scheme and accompanying rhetoric about welfare bludgers.

Department of Social Services figures show that just 16.8 per cent of people on JobSeeker and Youth Allowance are under twenty-five. Anti-Poverty Week executive director Toni Wren points out that half of those on JobSeeker are over forty-five and 28 per cent over fifty-five — many of them facing overt or covert age discrimination.

Forty-three per cent of JobSeeker recipients have been assessed as having only a partial capacity to work, mainly because higher eligibility hurdles have barred them from the more generous disability support pension. Many of them are forced to apply for eight jobs each month to continue receiving their payment.

About 10 per cent of the unemployed are single parents with children between eight and fifteen who would have qualified for the higher parenting payment before the Howard and Gillard government reduced the cut-off age for children from sixteen to eight. This move has now been largely reversed, which will improve the lives of some of the one in six Australian children living in poverty — a figure that Toni Wren points out has not changed in twenty years.

In short, the figures reveal a very different profile of the unemployed from the stereotype.

JobSeeker has become the fallback payment for many of those who have been locked out of higher income support options by increasingly restrictive eligibility requirements. This has very little to do with the populist rhetoric that anyone should be able to get a job when the unemployment rate is down to 3.5 per cent.

Danielle Wood points out that the Macklin committee’s proposed increase of $128 a week would still take the payment to only just over half the minimum wage, leaving a very significant financial incentive to work. Better employment services for those who face large barriers to employment would help; ACOSS says Australia’s spending on those services is less than half the OECD average.

The government is reviewing employment programs, and it’s to be hoped they’ll improve, but this is no substitute for a decent level of JobSeeker. As the Macklin committee stressed, the payment’s current inadequacy is also itself a barrier to finding work.

Was David Pocock too optimistic about the Macklin committee being a game changer? Perhaps not, if we look to the future. Its first report shifted the public debate to an extent that must have unsettled the government, though not enough to take proper action. Otherwise, perhaps there wouldn’t have been even the $40 increase, which was decided only near the very end of the budget process when the government learned it had more money coming in.

The Macklin report’s message cut through the pre-budget communications clutter, despite the government’s best efforts and its equivocal response. It generated an outpouring of support from an unusually broad political spectrum. Among the 350-plus signatories to ACOSS’s follow-up letter to Anthony Albanese were four federal Labor backbenchers — and others came out in public separately — Liberal MP Bridget Archer, the teals, other independents and the Greens, former Labor and Liberal ministers and backbenchers, prominent economists, and church and community leaders. The letter made several pointed references to not leaving people behind — a sentiment Anthony Albanese expressed in his election victory speech last year and has repeated since.

The Macklin report’s impact came not only from its official, if reluctant, government sanction. Step by step it builds the argument for the sheer inadequacy of JobSeeker. In the twenty years to 2020, the rate for a single adult rose by less than 3 per cent in real terms. The post-Covid increase in 2021 lifted this to 13.7 per cent, still far short of the 47 per cent increase in disposable income received by median households. In the same period, the gap between JobSeeker and the age pension grew in real terms from $35 a week to $160.

As a proportion of the national minimum wage, JobSeeker fell from 47 per cent in 2002 to 41 per cent in 2021, making it the third-lowest rate, after Britain and New Zealand, among the thirty-four developed countries of the OECD. Including housing costs, for which assistance is more generous in both those countries, puts Australia at the very bottom of the OECD rankings. “When an average earner becomes unemployed their income drops by more than [in] any other high-income country,” says the report.

And then there is the moral argument. JobSeeker recipients told the committee about looking around the house for things to sell, choosing between medicines and paying electricity bills, and doing without meat and fresh fruit and vegetables. This is the face of poverty in Australia — one of the richest countries in the world, but one where inequalities in income and wealth have been growing.

Under the agreement with Pocock, the Macklin committee will report annually before the budget. The pressure to turn into reality the prime minister’s words about leaving no one behind and holding no one back will continue.

Has the government made a rod for its own back by agreeing to the committee, as the Australian Financial Review’s Phillip Coorey has argued, given how many worthy, competing and unavoidable demands are made on the budget?

To the contrary, if it helps dispel ignorance and misunderstanding about Australia’s unemployed and pushes the government to do more to help them, it may be to Labor’s political advantage. Voters may be less inclined to defect to the Greens and independents if the government implements more real Labor policies for which the arguments are so compelling. •

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The government’s new strategy would focus on providing “temporary, proportionate and targeted” (but nonetheless substantial) fiscal support to “private sector jobs and investment,” as well as allowing the “automatic stabilisers” (tax receipts and cyclically sensitive spending) to “work freely to support the economy.” This strategy would remain in place — and the government would not embark upon the task of “budget repair” — until the unemployment rate was “comfortably below 6 per cent,” which was unlikely to be the case until 2024.

The budget projected the largest budget deficit, as a proportion of GDP, since the second world war — a decisive turnaround for a treasurer in a government that had gone to the previous election with having put the budget “back in the black” as one of its proudest boasts. But it was (as Stanley Holloway’s Alf Doolittle so memorably put it in My Fair Lady) “The Right and Proper Thing To Do.”

Yesterday, twelve days before the 2021–22 budget, Treasurer Frydenberg once again did the Right and Proper Thing when he pledged that— despite the unemployment rate (to his and everyone else’s surprise) having already fallen below 6 per cent — the government won’t commence budget repair until the unemployment rate has “a four in front of it.” In the technical language of economists, he was acknowledging that the “non-accelerating inflation rate of unemployment” is now, as Treasury and the Reserve Bank estimate, between 4.5 and 5 per cent.

Summing up, the treasurer assured his audience that the government isn’t planning “any sharp pivots towards ‘austerity,’” which means that both fiscal and monetary policy will be working in harmony towards a common goal of “full employment.”

These words are a marked contrast to government policy between 2002 and 2008, when the Reserve Bank was gradually tightening monetary policy but the Howard government (and the Rudd government in its first year in office) gave repeated rounds of personal income tax cuts and cash bonuses to pensioners and other groups.

And they also contrast markedly with what happened between 2014 and the onset of the pandemic. The Reserve Bank was, for the most part, seeking to ease monetary policy in response to what became a persistent under-shooting of its inflation target (and an unemployment rate stubbornly above 5 per cent), only for those efforts to be thwarted by the Coalition’s efforts to return the budget to surplus.

What’s important to remember is that a large amount of “budget repair” will occur over the next two years anyway, without the need for any discretionary “fiscal consolidation.” That’s partly because almost half of the deterioration in the budget’s bottom line is spending that was time-limited by design: that is, like JobKeeper, it switches off without the need for a specific decision to cut spending. And it’s partly because much of the remaining deterioration in the bottom line — which was due to a fall in revenues driven by the downturn in the economy — will be reversed as people go back to work and start spending again, and as business profits continue to recover.

The government will also get a revenue boost from the much-higher-than-expected price of iron ore (although it will probably continue to be very conservative in its assumptions about how long that will continue).

At some point, the government will probably have to make some hard decisions on either the revenue or the spending sides of the budget, or both, if it wants budget surpluses — particularly if it also decides to commit to increased spending in areas such as aged care and childcare. But there is no need for haste.

Indeed, there is a case to be made that — even when the economy has reached full employment, as it is now defined by both the Reserve Bank and Treasury — the government should stand back from repairing the budget and allow the Reserve Bank to begin rebuilding Australia’s monetary policy buffers before it starts to rebuild its own fiscal policy buffers.

Why? With interest rates effectively at their lowest (and likely to remain there until “2024 at the earliest,” according to the Reserve Bank), no capacity exists to use conventional monetary policy in response to the next economic downturn. By contrast, the government clearly does have some capacity to use fiscal policy to counter any future economic downturn. Its financial position, though not as strong as it was eighteen months ago, is stronger than it was expected to be at the time of last year’s budget, will improve further over the next two years (even without any discretionary tightening), and is in much better shape than that of most other advanced economies.

So the treasurer has again made the right call at the right time. Let’s hope he continues to do that. •

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Abrupt, frightening, savage — but also short and unexpectedly shallow. It was a deliberate recession, one brought about by government and by people’s fear of infection, and yet important parts of the Australian economy kept working. Mining and farming continued. So did manufacturing and major construction work. Electricity, gas and water utilities kept operating. Public servants were still working, often at home. Tradespeople, cleaners and gardeners were working more often than not. Most health workers remained on the job, busier than ever. Schools and childcare facilities remained open in most places, continuing to employ their staff. Office workers found that new technologies enabled them to work as productively from home. Media staff struggled to keep up with the demand for news and entertainment.

It may have been the case that many service workers who remained in jobs couldn’t produce as much as before. Yet so long as they were paid, they could sustain their usual spending and were counted in Australia’s total output. All up, and notwithstanding that Australia was often reported to be in “lockdown,” most of the Australian workforce kept working, either from their usual place of work or from home.

The economic collapse, such as it was, centred on discretionary retail such as clothing and furniture, local and foreign travel, and sports, entertainment and the arts. When the numbers for the three months ending June 2020 were published, they revealed that the big drop in GDP for that quarter was almost entirely caused by a fall in household consumption spending. There was a correspondingly huge increase in household savings. Government payments meant that income was actually up in the quarter. The fall in consumption — and the corresponding fall in output in industries including food services, medical services, transport, sports and recreation, administrative services and so forth — was not the result of a financial crisis, or a turn in the business cycle, or the failure of an export market, or any of the usual causes of recession. It was due, as the Australian Bureau of Statistics remarked, to “movement restrictions” in response to the pandemic.

Australia’s extraordinary three-decade economic expansion was over. Yet compared with the countries to which it usually likens itself, Australia had a good pandemic. When the rich countries’ international economic agency, the OECD, published its forecasts in June 2020, it expected Australia to experience a milder economic contraction over 2020 than any of the OECD’s thirty-seven members except South Korea. At 5 per cent, the expected shrinkage was less than half that forecast for Britain, a little over half that forecast for the eurozone, and less than those forecast for the United States, Germany and Canada.

When it met via video conference on 2 June 2020, the Reserve Bank board agreed that it was “possible that the downturn would be shallower than earlier expected.” So it would be. When it published a new set of forecasts on 6 November 2020, the expected peak unemployment rate was down to 8 per cent in the fourth quarter, thence falling gradually to 6 per cent two years later. What these figures revealed was that the Reserve Bank believed Australia’s annual GDP at the end of 2021 would be about the same as at the end of 2019. Soon enough, that forecast too proved pessimistic.

Although that was a more cheerful scenario than the earlier forecasts, the great economic cost of the pandemic wasn’t in doubt. Even with good recovery, Australia would have lost perhaps 6 per cent of GDP by the end of 2021 — the amount by which it may well have risen without the pandemic. Measured as real GDP per head, living standards at the end of 2021 would still be below the level reached at the end of 2019. Employment would be considerably higher than it had been at the end of 2020, but probably still a little lower than at the end of 2019. Unemployment at the end of 2021 could still be around 6 per cent of the workforce, or more than 900,000 people. And by then, Australian government debt would be beyond what anyone could have imagined as the bushfires raged through southeastern Australia two years earlier.

The full recovery of the Australian economy would depend partly on the global economy, many parts of which were in dire trouble. After a precipitous decline in the first three months of 2020, production had resumed growing in China, though it was far from the level projected before coronavirus. Japan, South Korea, Taiwan and Singapore had also gone back to work, but with many areas of activity still disrupted and intermittent episodes of reinfection. Jobs and output had dropped vertiginously in Spain, Italy and France and were only slowly recovering. The east and west coasts of the United States, the location of much of its industry, were still grappling with the aftermath of an epidemic far more severe than China’s.

Governments lifted their spending without much argument or political dispute. In advanced economies, the increase in government discretionary expenditure by October 2020 was just short of a tenth of GDP. The various forms of liquidity support — emergency loans, bank funding facilities and so forth — totalled another tenth of GDP. In January 2019, US current government spending was a third of GDP; less than eighteen months later it had risen to over half. The US federal government deficit was a little under US$1 trillion in 2019; the Congressional Budget Office expected it to be three times higher, at more than US$3 trillion in 2020.

Like the health impact, the economic impact of the pandemic didn’t spread as expected. The greatest damage was not in China, where it had begun, or in the poor countries of Africa. It hit hard in wealthy countries, and particularly in America, Britain and Western Europe, where the health damage was also greatest.

But the most unexpected economic aspect of the pandemic was that its impact was not as great or as enduring as first feared. In many wealthy countries, output collapsed in the second quarter of 2020 but was recovering by the third quarter. Income support sustained sales to households, often by package delivery. In the United States, retail sales from June 2020 were way above pre-pandemic levels despite new Covid-19 cases running at three times the level reached in April, when economic activity had plunged.

Even as Donald Trump fell behind Joe Biden in vote counting in the crucial state of Pennsylvania, the Bureau of Labor Statistics reported that the United States had added 638,000 jobs in October 2020, the sixth straight monthly increase. Of the twenty-two million jobs lost in March and April, half had been regained. Even so, US output in the fourth quarter of 2020 was expected to be markedly lower than in the fourth quarter of 2019. At 10.7 million, the number of workers without jobs in the United States in November 2020 was nearly double the total in February.

In China, output plummeted by nearly 7 per cent in the first quarter of 2020 compared with the first quarter of 2019. But output was growing again by the second quarter, and that continued in the following quarters. Both exports and imports swiftly increased. China’s economy, the International Monetary Fund predicted in October 2020, would be among the few to achieve growth over 2020 as a whole. Its recovery was strong enough, warned the Financial Times in late November, to put at risk China’s carbon reduction targets.

By the end of 2020 it was evident that, with a few exceptions, East Asia had handled the pandemic better than most other regions, and the economic growth gap between East Asia and the rest had widened. For Australia, which exports predominantly to East Asia, that mattered. Despite the impact of travel bans on foreign students and tourists, Australian exports were less affected than earlier feared. By November 2020, goods exports were down just 4 per cent on a year earlier.

By October, the IMF assessed that the global economic impact had been very bad indeed, but not as bad as earlier expected. The forecasts, while still bleak, had also improved. The United States and Europe had been stronger than expected and global trade was recovering faster than expected, especially China’s trade.

Even so, on IMF projections, the difference between the increase in global output in 2019 and the fall in 2020 would be equivalent to a global loss of output of around US$6 trillion, or more than three times the total annual output of an economy the size of Australia’s. Global trade was expected to fall 10 per cent in 2020. Comparing the second quarter of 2020 with the fourth quarter of 2019, the International Labour Organization calculated that the world economy had lost the equivalent of 400 million full-time jobs, disproportionately among women, low-wage earners and young people.

The cost to government budgets was also huge. In the fiscal year ending 30 September 2020, the US budget deficit tripled to US$3.1 trillion — more than 16 per cent of GDP. Spending increased 47 per cent over the previous year. US federal government debt to GDP ratio rose to over 100 per cent, and kept going up. The IMF expects 2020–21 budget deficits of one-fifth of GDP in Canada and the United States, a twelfth in China, and a tenth in Australia.

Australia’s post-pandemic circumstances are in some respects typical of all countries recovering from the pandemic, and in some respects atypical.

The economy was growing again. After output fell by 7 per cent in the second quarter of 2020, it rose 3 per cent in the third quarter. Output was then only 4 per cent lower than before the pandemic, in the December quarter of 2019. With a strong fourth quarter in 2020 and again in the first quarter of 2021, Australia might find that by mid 2021 output has returned to the pre-pandemic level — six months ahead of the Reserve Bank’s estimate last November.

Yet almost a million people were still out of work, and many of them will remain unemployed for a long time. With employment growing more slowly than output, it could be towards the end of 2021 before the number of jobs was back to where it was in December 2019 —leaving 700,000 people, or 5 per cent of the workforce, searching for jobs. Meanwhile, many new jobseekers will have joined the search.

In the first sustained fall in living standards most Australians have ever experienced, average real income per person (as opposed to the national total) will probably not regain the level of 2019 until 2022. After increasing rapidly since 1991, household wealth slipped in the first half of 2020 — though those losses have since been mostly recouped with resilient home prices and rebounding share prices.

If all goes well, the additional debt can be managed over the decades to come. Because ultra-low interest rates are expected to continue well into the future, the October 2020 budget projected the net cost of Commonwealth debt as a share of GDP to decline slightly, even though the amount of debt was increasing. Nor will the interest cost be large: just 0.9 per cent of GDP even for 2020–21, and 0.8 per cent of GDP by 2023–24.

But those figures are perhaps a little misleading. Before the pandemic, the interest the Australian government paid to its debtors was around 4 per cent. During the pandemic, the ten-year rate fell dramatically, allowing the government to refinance its debt at much lower interest rates while locking in a decade of low rates for the bulge in new debt between 2019–20 and 2023–24. Largely as a result, the government’s net interest payments, both as a dollar amount and as a share of GDP, were higher in 2018–19 (when debt was much smaller) than they are expected to be in any of the four years from 2020–21 to 2023–24.

The government bond rate will almost certainly increase over this decade, but borrowing costs will only rise sometime later. Treasury projects net interest payments to decline as a share of GDP in 2030–31 compared to 2020–21, despite net debt rising by nearly 8 per cent of GDP — and despite its projection that the bond rate will rise to 5 per cent in the next decade. Because it ends in 2030–31, Treasury’s projection doesn’t take account of the impact of gradually refinancing much higher debt during the next decade at an interest rate five times higher than the rate in this decade. The most constraining impact of the 2020 pandemic may not hit the Australian government for another ten years.

Timing the reduction of deficits and the control of debt will require good judgement. Although treasurer Josh Frydenberg says the federal government won’t try to stabilise the growth of debt until unemployment is comfortably under 6 per cent, the scenario offered in his October 2020 budget was quite different. On Reserve Bank forecasts, unemployment won’t drop to 6 per cent until the end of 2022, yet Treasury forecasts the budget deficit falling to 4 per cent in 2022–23. Well before unemployment falls to 6 per cent, in other words, the budget will have turned contractionary. And it will continue to be contractionary, with the deficit projected to fall to 3 per cent of GDP in 2023–24. That, at least, is the plan.

Treasury projects a relatively small increase in tax revenue over the four years from 2020–21 to 2023–24, the result of bringing forward personal income tax cuts and business investment write-offs. To reach the deficit target of 3 per cent of GDP in 2023–24, spending will have to fall by 8 per cent of GDP — a cut of a magnitude not evident in half a century of data. Treasury assumes that the private economy will come back strongly and quickly enough to replace the government stimulus.

It is true that the net debt-to-GDP ratio continues to increase over this period (peaking in 2023–24), but that is because the starting-point deficit is so big, not because it is being reduced slowly. The treasurer and Treasury have suggested the government’s policy may need to be adjusted, depending on the strength of the recovery. The projected settings underline just how much skilled judgement will be involved in fiscal policy over this decade.

Managing debt will preoccupy Australian governments for years to come, though it’s important to remember that the Commonwealth’s net debt, at 38.3 per cent of GDP in 2030–31, will still be far lower compared with the size of the economy than that of Japan, the United States, most of Western Europe and Britain.

The initial political battleground will be unemployment — and especially the speed with which Australia can be expected to reach the Reserve Bank’s new informal target of 4.5 per cent unemployment — and how to pay for reducing the deficit. Growth, and the automatic rise in tax revenue that results, will help. The Reserve Bank will help by keeping the government bond rate lower than it would otherwise be and by continuing to buy a share of additional government bonds. But there will also be pressure to raise tax revenue where it will have the least impact on current demand. As the IMF now argues, that might well include higher taxes on high incomes, capital gains and wealth. •

This is an edited extract from an new Lowy Institute paper, Reconstruction: Australia After COVID, published this month by Penguin.

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As we celebrate International Women’s Day, we should recognise the economic pain women have borne through this crisis. They were more likely to lose their jobs, more likely to pick up extra unpaid work, and less likely to get government support.

It isn’t too late to right the wrongs. In a new Grattan Institute report we argue that federal and state governments should boost support for women’s employment to build a broader recovery and avoid exacerbating economic inequalities between women and men.

Women were more likely to lose paid work during the pandemic because they are more likely to work in the “social consumption” businesses that were forced to scale down operations or close entirely during lockdowns. About two-thirds of hospitality and personal service workers, for example, are women.

Women are also more likely to have part-time or casual jobs, which were much more vulnerable than full-time jobs. And that meant they were much more likely to lose jobs and hours than men, and less likely to be eligible for JobKeeper.

Since lockdowns lifted, the employment bounce-back has been faster than expected. But it is still incomplete. In January, 55,000 fewer women were in work than before the crisis, and 9000 fewer men. Unemployment and underemployment remain too high for both women and men, and are expected to stay that way for years.

Most of the industries that continue to be affected by restrictions — higher education, tourism and hospitality, for instance — employ a majority of women. Prominent among the vulnerable groups that haven’t experienced a bounce-back are single parents, 80 per cent of whom are women.

The divergence between men and women at work has been compounded by a divergence at home. Women already did the lion’s share of housework, caring and other unpaid work. With many adults working from home during the crisis, and children learning from home, that load only grew. Everyone did more, but women, and especially mothers, took on a bigger share of the extra work.

More unpaid work means less time for employment and education. Many women reduced their paid hours, left the workforce altogether or stopped studying. These choices, made out of short-term need, have long-term ramifications for women’s earnings, careers and economic security.

For many women who lost jobs or reduced their paid hours, 2020 will be another interruption in a stop–start career. And that means a wider earnings gap between men and women: even six months out of work can add another $100,000 to the $2 million average lifetime earnings gap between men and women.

What can be done? In the short term, governments must give priority to reducing unemployment and underemployment as quickly as possible. More stimulus is likely to be needed, and governments should take this opportunity to build a broader recovery.

The extra spending should be targeted to the sectors that are still struggling, many of which are major employers of women. This could include vouchers to encourage spending on hospitality, tourism and entertainment, and temporary expansions of social programs and services.

The federal government should also strengthen support for people who are still out of work. It should expand the JobMaker hiring credit and, as has been widely advocated, further increase the JobSeeker payment and Commonwealth Rent Assistance. This would boost economic activity, help unemployed people to look for work, and improve the living standards of Australia’s most vulnerable people, including single mothers.

As they focus on rebuilding in the longer term, governments should invest in the care economy to boost economic growth and improve the living standards of all Australians, while reducing women’s economic disadvantage. Making childcare cheaper is the most significant thing the federal government can do to support women’s employment. Investment in aged care is also urgently needed and would create jobs for women while improving the living standards of older Australians.

So far, the federal government has failed to meaningfully tackle the economic costs borne by Australian women in the Covid-19 recession. It should use the next budget, due in May, to ensure Australia really does build back better. •

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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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These contradictory impulses are evident in the government’s economic policies. Having abandoned its denunciation of fiscal stimulus back in March, the government has now, of necessity, dropped the idea that budget deficits are a sign of poor economic management. Whatever choices are made in next week’s federal budget, we can be certain that the outcome will be massive deficits for years to come.

But the government must also do something about its planned tax cuts, legislated years in advance, which were rationalised by projections of a decade of surpluses. Always dubious, those projections are now entirely fanciful.

At this stage, the budget appears likely to include an acceleration of the stage two tax cuts legislated for 2022, rebadged as a fiscal stimulus measure. This would be a mistake for a number of reasons.

First, unlike stage one, the stage two tax cuts give most of the benefit to above-average income earners. The largest cuts (expressed as a percentage of income) go to taxpayers with individual incomes above $120,000 a year, or 135 per cent of average full-time earnings. The stage three tax cuts, legislated for 2024, are even more skewed in favour of high incomes.

Even granting the idea that, before the pandemic, tax relief for high-income earners was justified in terms of equity, that is clearly not the case today. As for everywhere in the world, the pandemic has had a huge impact on lower-income earners (temporarily, and partially, cushioned by JobSeeker and JobKeeper) while leaving most high-income earners unaffected.

The second problem arises from the attempt to rebrand these tax measures as a stimulus while cutting back JobSeeker and JobKeeper. The crucial feature of the pandemic is that many businesses have been forced to close, and workers left unable to work, because of measures to stop the virus spreading. Income support has allowed businesses to pay their bills, including wages, and permitted unemployed workers an income sufficient to live on. All, or nearly all, of this support has been reflected in higher spending.

By contrast, the main impact of the pandemic on higher-income earners has been to reduce opportunities to spend. With their incomes mostly unaffected, they have increased their holdings of cash and paid down debt. They already have plenty of untapped spending capacity, so a tax cut would be unlikely to stimulate more demand.

Most importantly, the pandemic has exacerbated basic problems in our society. Inequality, already increasing before the pandemic, has become substantially worse, and a period of high unemployment — with all its effects on individuals and households — will compound the problem.

In these circumstances, rather than rewarding those who have already done well, we need to fundamentally reorient our income support policies for those who are unable to find stable paid work in the modern economy, or whose other commitments prevent them from doing so.

In a recent ANU Policy Brief, Tim Dunlop, Jane Goodall, Troy Henderson, Elise Klein and I have suggested that the problem could be tackled within the current budget framework by creating a Liveable Income Guarantee. Under this plan, a payment equal to the age pension, and subject to the same asset and income tests, would be extended to everyone who is willing to make a contribution to society consistent with their capacity to do so.

Those contributions would be broadly defined to maximise the opportunities for inclusion. Examples include full-time study, volunteering, caring for children and starting a small business, as well as job search.

Unlike some proposals for a universal payment, this policy would be relatively inexpensive, perhaps as little as $20 billion a year. This is comparable to the budget cost of the tax cuts legislated in advance and now proposed for accelerated delivery.

In addition to the Liveable Income Guarantee, a wide range of measures could be used to provide short-term stimulus more effectively than tax cuts. Measures supported by the great majority of Australian economists surveyed this month by the Conversation include spending on social housing and education. Economists also support a permanent increase in unemployment benefits, which is the first step in our Liveable Income Guarantee.

Having survived the worst of the pandemic so far, it is crucial that the government chart a course for a positive future. Measures such as accelerated tax cuts represent an unsustainable attempt to restore the policy priorities of the pre-pandemic era. •

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Noel Pearson’s second article was co-authored by Bill Mitchell, an economist known for helping to found modern monetary theory, or MMT, a heterodox school of macroeconomics, and helping to devise the job guarantee that is the school’s policy centrepiece.

At first glance, the Pearson–Mitchell alliance might seem curious. Pearson’s assault on “welfare dependency” — he refers to welfare as “poison” — is popular with the political right, whereas Mitchell identifies as a socialist. But the job guarantee occupies a complex place in political philosophy, bringing together strange bedfellows.

Today, the concept is probably most popular on the American left. But MMT’s co-founder and key benefactor, Warren Mosler, a politically unorthodox former Wall Street hedge fund manager, points to the hard-right Breitbart columnist John Carney as a supporter of a job guarantee, which Carney suggests could be used to provide the labour to build Donald Trump’s wall.

Mitchell’s emphasis on “reciprocal obligations” and “duty to work” gives a clue to the job guarantee’s popularity on the right. His scheme is explicitly designed to replace unemployment benefits.

Conventional economics sees a trade-off between employment and price stability. As unemployment nears zero and firms compete for a dwindling pool of unemployed workers, inflation increases. To maintain price stability, a fraction of the working population — what Marx called a reserve army — must be kept unemployed. In most developed countries these people are paid unemployment benefits. Mitchell’s job guarantee would abolish these benefits and instead require the unemployed to perform community tasks in exchange for income support. Supporters of the job guarantee consider this arrangement to constitute a paid job, but it is sufficiently analogous to unemployment to serve as a reserve army of labour.

As MMT academic and Mitchell co-author Randall Wray puts it, a “buffer stock of workers is a restraining influence on wages, whether they are unemployed or JG-employed.” There should not be “any difference in the influence.” To control inflation, the rate of payment to the unemployed — whether on a JobSeeker payment or in a job guarantee work scheme — must be fixed, in the sense that it can’t be bargained up in the manner of conventional employment.

In this sense, the grand rhetoric of the job guarantee movement boils down to semantics. Imposing work requirements on income support can meet a definition of “employment” that lets the government declare involuntary unemployment to be zero per cent.

Not all job guarantee advocates follow Mitchell in eliminating the JobSeeker allowance, but they generally support a much lower rate of payment for people who don’t participate in the scheme. In substance, the job guarantee is equivalent to an unemployment benefit accompanied by onerous work requirements; non-compliance is subject to a payment penalty (cancellation, in the Mitchell model).

Australia arguably already has a kind of job guarantee — work for the dole. Job guarantee proponents object to this characterisation, primarily because they propose paying the minimum wage, but this muddles the issues. The payment in either scheme is a policy choice. JobSeeker could be set at the current minimum wage; the job guarantee could be set below the minimum wage.

In either case, the same constraint applies: the rate must be fixed so the “buffer stock” can keep inflation under control. Collective bargaining over pay rates is impermissible. The job guarantee participant is literally a “recipient” of terms handed to them. They cannot have the rights of conventional employees.

Advocates say that job guarantee participants would do work of significant value. But this claim conflicts with their own design principles. To accommodate a worker of any skill level — anytime, anywhere — the work can require only basic skills and must be strictly optional from a societal perspective. (The job guarantee is a “buffer stock,” so tasks must wind down when the economy picks up.) Proponents also claim that job guarantee work can’t compete with currently employed workers.

It isn’t possible for work under a job guarantee to meet all those criteria. Many suggested tasks (such as care) relate to ongoing social needs. Others (care, infrastructure) are too highly skilled to be appropriate; the more highly skilled the participants, the more they compete with existing workers. But if a job guarantee provides classic “make-work” jobs of basic skill, then the social benefit would be next to nil. These contradictory design criteria create an “impossible quadrilateral”: any attempt to achieve one criterion requires abandoning another.

In short, the job guarantee is no way to satisfy aged care or childcare needs. It will not install solar panels. It will not build bridges, or roads, or even a big wall. More likely is make-work — raking leaves, picking up trash or weeding — but this means ditching the grand claims about social benefits.

Proponents also argue that a job guarantee is psychologically better for recipients than are unemployment benefits. Research shows an association between unemployment and low subjective wellbeing that isn’t entirely explained by income. But does this really come from work, as such? The voluntarily retired are not in formal work but generally do fine. Perhaps the real story is not so much about the presence or absence of tasks, but about norms and social approval. Although work tasks are easy to guarantee, social validation is another story.

Let’s say the government simply increased work for the dole hours to full-time and then declared it “employment.” Any increase in payment would be welcome, whatever the name, but would it suddenly lead to non-financial benefits? Would it alter the participants’ social standing? There’s no magical power in the mere designation “job.”

By design, job guarantee participants can’t be treated as regular employees. Beyond the absence of basic labour rights like the right to bargain for their wage, they can’t even be promoted for good performance.

On the other hand, non-performance is of little consequence. As the work is guaranteed — including for people with vastly different capabilities and needs — it would be hard to fire anyone. MMT economist Pavlina Tcherneva of Bard College compares it to a child’s legislated right to school. Implicitly, administrators must go to extremes to retain unproductive and troublesome participants.

Even when fired, participants can resume their work virtually straight away. Tcherneva compares this to removing a patron from a library: “There may be some circumstances when a person is asked to leave the premises, but unless they threaten the public’s safety, they are not denied access… the next time they show up.” The principle is “assurance that no one will be denied access to a job.”

What exactly is the point of this bizarre arrangement? It requires little more than turning up at a so-called worksite and pretending to do something. It is not a real job; it is theatre.

Of course, some unemployed people may gain satisfaction from workplace chores. Volunteering is already available, and the government could help facilitate it.

But others may find job guarantee make-work to be tedious and degrading, as is historically the intent of workfare programs. Bad work can be worse for health and happiness than no work.

Those who choose not to participate in arbitrary labour should not be punished. Make-work programs tend to “lock in” participants, crowding out job search activities. People get stuck in dead-end pseudo-jobs, no good for them or the economy.

Why the interest in this grandiose make-work scheme? Perhaps it seems like a “one weird trick” solution for two great socioeconomic ailments — structural unemployment and poverty.

But there exist well-established, albeit less sexy, policy solutions — including conventional full employment policy — that remain unimplemented. We should hire more public sector employees, with full industrial rights, to do work of meaningful value. We should implement an active labour market policy — including intensive training, counselling and transitional subsidies — to place people in genuine jobs. We should abolish work for the dole and raise JobSeeker payments — even to the minimum wage — without the cost of a massive job guarantee bureaucracy.

Research on people unemployed in Denmark suggests that this kind of policy package can eliminate the physical and mental health effects associated with job loss.

If policymakers wish to emphasise reciprocity in unemployment payments, John Quiggin’s proposed participation income is preferable to the job guarantee as it incorporates broader activities including job search, volunteer work and family care — without requiring make-work.

There is no need for a cumbersome, untested plan for fake jobs designed to displace welfare and flout industrial rights. •

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Strikingly, the technology to do this has been available for years. It took the pandemic to make people try something different, work through the initial difficulties and conclude that the new way is better. The shift in sentiment has been such that the stock market value of Zoom exceeds that of the world’s seven largest airlines combined.

But the really big change has been the transformation of income support. On 1 March, when Australia recorded its first fatality as a result of the coronavirus, the government was still committed (at least officially) to a budget surplus. It had resolutely refused to increase the Newstart unemployment benefit, frozen in real terms by the Howard government in 1997.

Despite ample evidence to the contrary — including sharply increasing rates of underemployment — the government’s operational assumption was that anyone who wanted a job could get one, and an individual’s unemployment reflected his or her personal defects (a lack of job readiness, misguided job searching or just plain laziness). This assumption was reflected in a range of policy initiatives, including punitive compliance regimes, the Work for the Dole scheme and the rollout of cashless welfare cards.

Within a few weeks, everything changed. The government suddenly discovered that none of the usual rules applied. Unemployed workers could be paid a liveable income, called JobSeeker, at twice the value of the grossly inadequate Newstart. Under a second program, JobKeeper, businesses could continue to employ workers even if there was no work for them and no money coming in to pay them. Contracts were not inviolable laws of nature but social conventions that could be varied to meet the needs of the crisis.

The JobSeeker and JobKeeper programs have been highly effective in maintaining income for Australian households, even as the economy has gone in to what the government has called hibernation. There has been little evidence of the widespread economic suffering experienced in countries with weaker responses, most notably the United States.

But these schemes can’t last forever in their current form. The fact that JobKeeper is higher than the age pension is hard to defend, either politically or in terms of social welfare. It is an emergency response to the very specific circumstances of the pandemic, in which many businesses have been forced to close temporarily.

The Morrison government’s “snapback” would simply end JobSeeker and JobKeeper in September, six months after their inception. But most economists, notably including Reserve Bank governor Philip Lowe, doubt that this can be done without pushing the economy into a deep recession. Regardless of the macroeconomic analysis, there’s a more important question: even if we could return to the policies of the pre-pandemic years, should we?

The free-market economics underlying the desire to cut back public spending were discredited by the experience of the global financial crisis and the disastrous failure of austerity in Europe and elsewhere. The politics of welfare restriction are those of division and culture war, and are now directly opposed to the “we’re all in this together” lesson of the pandemic.

One way of extending that lesson into the post-pandemic era would be to adopt the concept of a liveable income guarantee or — to use the term put forward just before his untimely death by the great British economist Tony Atkinson in his book Inequality: What Can Be Done? — a “participation income.”

The idea of a participation income rests on the principle that everyone has a right to a living income along with an obligation to contribute to society. The first part of that principle has long been recognised in systems of income support for those unable to work because of age, disability or unemployment, or because they need to care for young children.

Under the market liberal ideology that has held sway since the 1970s, eligibility and support in all these categories have been tightened. The qualifying age for the pension has been increased to sixty-seven (from sixty-five for men and sixty for women). The Austudy scheme has been restricted to students over twenty-five. Applicants for disability pensions face increasingly stringent tests. Supporting parents are pushed onto Newstart as soon as their youngest child turns eight. Unemployment benefits have been frozen and compliance measures made ever more punitive.

The first step towards a participation income would be to reverse the changes of the past thirty years by setting all benefits at the same rate as the age pension and restoring more generous eligibility criteria. If we could afford these policies thirty years ago, we can afford them now.

Apart from jobseeking, what kinds of activity might we consider to be participation? Most of the many possibilities have precedents, but they haven’t been considered as part of a comprehensive program of social participation. They include:

• volunteering in support of organisations and causes, which might include firefighting and surf lifesaving, women’s refuges, or major public events like the Commonwealth Games

• working on grant-funded community projects, along the lines of the Community Employment Program introduced under the Hawke–Keating government

• setting up a small business

• artistic and creative activity (which were a notable aspect of the New Deal–era Works Program Administration in the United States)

• full-time study.

Obviously, the participation payment would not be available to people who are already in full-time employment. And, as with the age pension, assets and means tests would apply to people who receive investment income.

How we deal with intermediate cases — people with limited income from part-time work, for instance — would be guided by the principle that a well-integrated tax–welfare system should avoid creating the high effective marginal tax rates that result from the interaction of marginal income tax rates and the rates at which benefits are withdrawn through means tests.

Compliance measures within the tax and welfare systems should also be integrated. Currently these are massively asymmetrical, with the tax system essentially operating on the basis of self-assessment, subject to auditing, and the welfare system working on the assumption that recipients are cheats and must therefore be subject to draconian compliance rules.

The extreme example was the robodebt scheme (abandoned for now, but still set for a comeback) in which repayments were demanded from recipients on the basis of a mechanical and unreliable estimate. The asymmetry is even more striking when we remember that a single form of tax avoidance (profit-shifting by multinationals) is estimated to cost the Australian public nearly $10 billion a year, many times the amount recouped (and often then repaid) through the robodebt scheme.

As with the tax office’s business activity statement, the appropriate compliance regime for a participation income is a return, submitted quarterly and subject to audit. The assumption should be one of social solidarity rather than division.

How much would this cost? The current JobSeeker supplement is estimated to cost $14 billion over six months, or $28 billion if it were extended for a full year. If the benefit were set permanently equal to the age pension, the cost would be about half this much at the high rates of unemployment associated with the pandemic, and no more than a third (less than $10 billion a year) in the context of a recovery.

The number of people potentially eligible for a participation income but not currently receiving a benefit is harder to estimate. The largest group that might fall into this category, totalling around one million, are those who would like to work but are not currently searching. But many of these people are already receiving benefits or live in high-income households. Assuming half a million additional recipients and a cost of $24,000 per year, the budget cost would be $12 billion a year. Some of this would flow back to the government through a higher level of demand and resulting increased tax revenue.

The cost of the proposal may be compared with the revenue cost of the federal government’s Stage 3 tax cuts proposed for 2024–25, most of which benefit high-income earners. Treasury has estimated this as $95 billion over six years, or $16 billion a year.

Some observers might worry that people will be tempted to drop out of the paid labour force and rely on a participation income instead. As mentioned, the high prevalence of underemployment suggests that this would not be a huge problem. Most people would rather have a full-time properly paid job than a welfare benefit. To the extent that the system is incapable of providing this, a participation income is a reasonable alternative.

As we emerge from the first phase of the Covid-19 crisis, and also look back on the global financial crisis, we can, if we choose, try to patch up a system that is manifestly failing to deliver good outcomes. Or we can draw on the success of our collective response to the pandemic and start building something better. Contrary to Margaret Thatcher’s famous remark, There Is An Alternative. •

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This leaves Australia (and almost every other country) in the early stages of what is likely to be a serious economic slump — more serious (in Australia’s case) than the one prompted by the global financial crisis, and possibly the most serious since the Great Depression of the 1930s. By last week, according to an ABS survey published yesterday, 49 per cent of businesses had already been adversely affected by falling demand — and in some cases by shortages of staff — and 86 per cent expected to be adversely affected in coming months.

It is difficult to judge just how severe — how deep and how long — this downturn will be. It depends on how comprehensive the shutdown turns out to be, and how long it lasts. And that depends partly on the advice governments receive from medical experts — advice that can differ, as we are now learning, from one expert to the next. It also depends partly on how quickly an effective tracking-and-testing regime (similar to those developed in China, South Korea, Taiwan and Singapore) can be implemented that would allow mandatory social-distancing requirements to be eased before a vaccine can be developed, tested and made widely available. Finally, the depth of the downturn, if not its duration, will also be affected by the success of government and central bank efforts to support businesses and individuals.

With almost no reliable or useful history to draw on, economists can only construct scenarios based on assumptions about all these factors.

By way of illustration, consider a scenario in which current restrictions are extended to include schools in every state and territory, and parts (though not all) of the manufacturing and construction sectors. Assume exemptions for agriculture, mining, utilities, some other parts of manufacturing (especially food and beverages), food and beverage retailing, some business services (such as accounting and legal practices) and of course health services, as well as most government operations (though many public servants would be working remotely).

Under that scenario, the economy could contract by almost 10 per cent in the June quarter — an unprecedented decline — followed by a much smaller decline in the September quarter. With negative growth likely to have occurred in the March quarter as well, this would constitute Australia’s first recession (by the most commonly used definition) in almost thirty years. It would also be the most severe, with a cumulative decline in real GDP of more than 10 per cent. By comparison, real GDP declined by 1.4 per cent in the 1990–91 recession, and by 3.4 per cent in the recession of 1982–83.

Some sectors would experience much more significant contractions — around 70 per cent in accommodation and food services, for example, more than 50 per cent in art and recreation services and in other personal services, more than 40 per cent in retail trade and in transport, 25 per cent in wholesale trade and in construction, and at least 20 per cent in manufacturing.

A harder shutdown would inevitably result in an even sharper and broader, but possibly shorter, downturn.

Among the principal objectives of the government and the Reserve Bank has been to reduce the impact on employment of the sharp downturn in output during the shutdown period, and to improve the prospects of a swift return to pre-crisis levels of employment by assisting businesses to survive through a period of shrivelled or completely dried-up revenue.

Those measures have been unable to prevent a significant number of employees being stood down or retrenched, although in many cases employers (particularly large businesses) have indicated that they will have jobs to go back to when restrictions have been lifted. Another of the government’s objectives has been to provide people who have lost their jobs, temporarily or permanently, with easier access to more generous income support than might otherwise be available. With the assistance of state governments and financial institutions, it is also providing some temporary relief from costs such as mortgage repayments and utility bills.

As but one illustration of the possible impact of some of these measures, suppose that, in each sector, employment falls by about half as much as output. In hospitality or retailing, for instance, where casual employment is more commonplace, employment losses may be larger than this; in some other areas, such as healthcare and supermarkets, there may be some net increase in employment.

Under those assumptions, employment could fall by almost 1.4 million — equivalent to a decline of more than 10 per cent from the February level. That is a similar percentage to the decline in output, because labour-intensive sectors of the economy are likely to be affected more severely by the shutdown than sectors such as mining or agriculture.

The impact of job losses of this order on the unemployment rate will depend on how many of the people who lose their jobs meet the statistical definition of being unemployed, which includes a requirement that they are not only willing and able to work, but are also “actively looking” for a job. If all of them fit those criteria, then the unemployment rate could reach around 15 per cent — the highest since the early 1930s. But it seems more likely that many people who lose their jobs will see little point in “actively” looking for work — in which case the labour force surveys will record them as being “not in the labour force” rather than “unemployed.” If, say, two-thirds of people who lose their jobs are classified as “not in the labour force,” the unemployment rate would likely increase to almost 9 per cent.

A more realistic picture of what is happening in the labour market could be provided if the government were to publish a weekly total of the number of people receiving the new coronavirus supplement, similar to the Unemployment Insurance Weekly Claims series published every Thursday in the United States. Such information would also assist in judging whether governments need to do more to cushion the impact of the crisis.

The economy’s recovery can’t start until restrictions on the movement and gathering of people are eased, whenever that might be, and it is unlikely to be as swift as the downturn. Some pent-up demand will lift spending on meals out and various forms of entertainment, but many people’s capacity to spend will have been eroded, perhaps significantly, by an extended period of substantially reduced income (or none at all).

As occurred after the financial crisis, many people may also want to save more in order to offset the depletion of their superannuation balances by the falls in sharemarkets. Home-buyers and businesses who have taken up the repayment holidays offered by financial institutions will face higher repayments (because interest not paid during the shutdown will have been capitalised). And, inevitably, some businesses will not have survived the downturn, and their employees will not have jobs to return to. Businesses that have survived may not be able to return to pre-shutdown levels of employment.

The economic downturn will thus have lasting consequences, not least for government finances. But that’s a topic for another time. •

The post Measuring the downturn appeared first on Inside Story.

Now suppose this policy has longer-term benefits: that it could automatically boost the economy during times of weakness without the time lags associated with infrastructure and other stimulus spending; that it would automatically withdraw from the economy when times were good without the permanent cost of tax cuts and other stimulus measures; and that it would boost economic growth and reduce volatility.

And suppose the cost of this policy was only 0.6 per cent of the federal budget, meaning it could be funded without losing the politically cherished budget surplus.

Sound good? Then, congratulations, you support increasing Newstart.

Newstart is the main income support payment for people who are unemployed. Compared to the age pension, disability support payments, the minimum wage and average wages, it has shrunk dramatically over the past twenty-five years. This is bad news for the economy, and even worse news for the 723,000 people who are forced to live off it.

While the age pension has doubled in real terms since 2000, Newstart has remained unchanged. The reason is simple, but illogical. Newstart is indexed against inflation whereas other government payments are indexed against wages, which more accurately measure living standards. If inflation and wages moved together, this wouldn’t be a problem. But wages have outgrown inflation by 40 per cent over the past twenty-five years, meaning that Newstart recipients, in real terms, have fallen far behind.

By any measure, people on Newstart are among the most disadvantaged. If a society can be judged by how it treats its most vulnerable, Australia is not looking good. An analysis by ANU economists Ben Phillips, Matthew Gray, Cukkoo Joseph and Richard Webster shows that the poverty rate among households that depend on government payments as their primary income (apart from the age pension) rose from 39 per cent in 1993 to 80 per cent in 2017.

Before we get onto the economics, it’s worth rebutting some of the common misconceptions about Newstart.

The idea that people on Newstart are lazy young urban-dwellers is not only factually incorrect (the typical Newstart recipient is a middle-aged woman living outside the big cities) but ignores the fact that, across the economy, there is only one vacant job for every 4.4 unemployed people. It’s hard to take a job that doesn’t exist. Macquarie Bank has shown that the best way to reduce unemployment is to create more jobs: the two move in lockstep. They probably won’t win the Nobel Prize for that discovery, but those who dismiss the unemployed as being lazy seem to have forgotten this most basic arithmetic.

Despite all its controversy, Newstart happens to be one of the cheaper welfare programs around, costing less than one-seventh of the age pension. Increasing Newstart is also the quickest, easiest and most effective way of reducing poverty in Australia.

The argument that increasing Newstart reduces the incentive to find a job is similarly baseless. Newstart is so low that the Grattan Institute found it actually prevents people from looking for work. Many people on Newstart are already working but can’t get enough hours. And if you’re aware of research findings on intergenerational disadvantage, you’ll know that your childhood postcode shapes your life outcomes. Demonising the poor, in other words, is a bit like demonising someone who didn’t win at a game of luck.

There is also a strong economic case for increasing Newstart.

Consider the short-term benefits first. You didn’t have to go to the Boxing Day sales to know that the economy is not doing well (you were more likely to get hit by a tumbleweed than an enthusiastic shopper!). And it’s little wonder. Compared to the first half of the decade, retail spending growth over the past five years is down 30 per cent, quarterly wage growth is down 40 per cent and consumption growth is down 15 per cent. The rate at which the economy creates new businesses has fallen from 14 to 11 per cent. Investment now contracts each quarter by an average of 0.4 per cent and productivity growth has flatlined. GDP growth remains around global financial crisis levels.

What the economy needs is more demand. While businesses have stopped investing and expanding, their profits are at record highs, the ASX200 has broken new ground, bond yields and interest rates are at record lows and share buybacks and dividend payouts are at unprecedented levels. The message from the data is clear: businesses are awash with cash, and can easily get more if they want it, but they will only invest and hire if there is demand for what they sell.

Enter Newstart. The ANU’s economists show that the poverty gap for people on Newstart — the absolute difference between a household’s income and the poverty line — has increased fivefold from $25 in 1993 to $124 in 2017. This means that Newstart recipients have what economists call a “high marginal propensity to consume,” a fancy way of saying that they are forced by their dire circumstances to spend every dollar they receive. In other words, every dollar spent on Newstart goes straight into the demand-side of the economy rather than being saved. In normal times, this stimulus would be offset by rising inflation, rising interest rates and an appreciated exchange rate (as well as more spending on imports). But as economists Jason Furman, Larry Summers and Olivier Blanchard have shown, these effects are dramatically weaker in the low-inflation, low-interest environment in which we live, meaning the stimulus effect is even larger.

The economists at Deloitte Access Economics have crunched the numbers. They estimate that, even with these offsetting effects, increasing Newstart by a meagre $75 per week (ANU modelling suggests $100 would be optimal) would boost GDP by $4 billion and create an additional 12,000 jobs by 2021. They show that the benefits disproportionately flow to regional and remote communities (given that’s where most Newstart recipients live) and would boost wages, corporate profits and government coffers through the increase in demand in the economy.

But it’s in the long-run that an increase in Newstart makes the most economic sense.

Newstart is what economists call an automatic fiscal stabiliser: it automatically increases government spending when the economy is weak (through payments to the rising number of unemployed people) and reduces demand when the economy is strong, thus stabilising the economy over the long-term.

Economists like automatic stabilisers because politicians have demonstrated an inability to manage fiscal policy responsibly. They either spend too much when the economy is strong (Howard) or cut back spending when the economy is weak (Gillard, Morrison). The IMF shows that more than half the fiscal stabilisation observed in advanced economies is because of automatic stabilisers rather than government decisions.

More importantly, the IMF shows that Australia could do much better in strengthening our automatic fiscal stabilisers, and hence boosting growth and reducing volatility. Australia lags behind the United States, Japan, Canada and most others. We are more than a third behind New Zealand. The cost is significant. By having stronger automatic fiscal stabilisers through measures like an increase in Newstart, annual Australian GDP growth could be up to 0.3 percentage points higher and volatility — the extent to which GDP growth lurches from boom to bust — could be reduced by up to 20 per cent.

The macroeconomic case for increasing Newstart is just one of many reasons to do it. As the acclaimed American poet, Maya Angelou, once said, “When we give cheerfully and accept gratefully, everyone is blessed.” The same is true in economics. •

The post The economic case for increasing Newstart appeared first on Inside Story.

Although the AfD attracted only one in eight German electors, it won 27 per cent of votes in the East German state of Saxony, narrowly beating the Christian Democrats’ 26.9 per cent. This remarkable result brought Saxony’s next state election, still two years away, into sharp focus.

Some commentators portrayed the state election — which was eventually scheduled for 1 September this year — as potentially the most significant state-level vote since reunification; others called it a Schicksalswahl, an election that would determine Germany’s fate. A Bundestag in which a far-right newcomer had become the largest opposition party was one thing; a state parliament in which the AfD was the dominant party would be quite another. Would the AfD once more outperform the established parties? Might it even be able to form government? Or would Saxony become ungovernable?

The rise of the AfD, which has been around for just six years but is represented in the national Bundestag and all sixteen state parliaments, is widely interpreted as the most obvious sign of a Rechtsruck, a lurch to the right, in German society. As I’ll explain, I don’t subscribe to that view. What’s beyond doubt, however, is that the AfD has undergone its own Rechtsruck. From a party of Eurosceptics with a neoliberal agenda, it has morphed into a far-right party whose leaders promote an aggressive nationalism, deny that humans are responsible for climate change, and bitterly oppose Germany’s accommodating of significant numbers of refugees and asylum seekers.

The radicalisation of the AfD’s program didn’t scare off voters; on the contrary, it attracted a higher percentage of the vote. But the party’s support has been unevenly distributed. In the 2017 federal election, for example, it scored well below 10 per cent in the four northwest German states of Schleswig-Holstein, Lower Saxony, Bremen and Hamburg. In Saxony, where it performed best, the results were also mixed: in Leipzig 2, one of two electorates in Saxony’s largest city, it came only third, behind the left-wing Die Linke, which topped the vote, and the Christian Democrats. At the other end of the spectrum, in Sächsische Schweiz-Osterzgebirge, in Saxony’s southeast, the AfD’s candidate scored 37.4 per cent, the party’s best individual result nationally.

Most of Sächsische Schweiz-Osterzgebirge’s 245,000 inhabitants live in small towns, the largest of which are Pirna, the shire’s administrative centre, and Freital. Both have populations of just below 40,000 and are within easy reach of Dresden. But the shire also includes small villages, some of which can’t easily be reached by public transport. It extends over 1654 square kilometres, approximately the combined total size of the city-states of Hamburg and Berlin.

Like other parts of the former German Democratic Republic, the southeast of Saxony was hit hard by the massive changes to the economy after 1989. The industrial bases of towns like Freital, Pirna, Sebnitz and Heidenau mostly disappeared, leaving industries that employ only a fraction of the workforce. Unemployment skyrocketed and the population declined, with young people — and young women, in particular — leaving for West Germany. In 2002 and 2013, Pirna and other communities along the Elbe and its tributaries were also hit hard by floods.

In economic terms, though, the shire has recovered well. Saxony’s unemployment rate is 5.4 per cent — lower, for example, than in Germany’s most populous state, North Rhine-Westphalia, or in the city-state of Hamburg. With 4.2 per cent, the shire of Sächsische Schweiz-Osterzgebirge has the lowest unemployment rate in all of Saxony.

For many communities here, the growth of tourism has been a key ingredient of economic recovery. Both Saxon Switzerland — the mountains along the Elbe between Pirna and the Czech border — and the Ore Mountains are a hiker’s paradise, and the latter are also a popular skiing destination. The shire has also benefited from the fact that nearby Dresden — less than a half-hour’s train ride away from some population centres — has been booming.

Most of the tourists are Germans, with another significant proportion from the neighbouring Czech Republic. But international tourism is playing its part. The tourism industry has also been responsible for labour migration; hotels and restaurants regularly fill vacancies by recruiting staff from across the Czech–German border.

To try to understand the local mood and get a sense of how the 1 September election would unfold in this part of the state, I visited Sächsische Schweiz-Osterzgebirge frequently over the months leading up to Sunday’s vote, speaking to local members of parliament, mayors and other local politicians and representatives of civil-society organisations. By mid August, while the forthcoming state elections were featuring prominently in the national media, the campaign still didn’t seem to be in full swing in the shire. Was this perhaps evidence of a political culture that was different from the one I had grown up with in West Germany?

Sunday 18 August 2019

With only a fortnight of campaigning still to go, the local newspaper, the Sächsische Zeitung, is dominated by matters other than the election. No large election rallies are scheduled in Sächsische Schweiz-Osterzgebirge, and only one public forum involving the main candidates in each of the four state electorates that cover the shire. This series of forums has been organised by the Landeszentrale für Politische Bildung, the state body responsible for civic education. On 28 June, admittedly very early in the campaign, only sixty people had turned up for the forum in state electorate #49, which covers the town of Dippoldiswalde and the Eastern Ore Mountains.

Outside Pirna and Freital, comparatively few election posters are on display. Almost all of the ones that show local candidates or party leaders depict the faces of men, simply because most candidates in Saxony, and most of the parties’ state leaders, are men. Of the twenty-four candidates representing the six parties predicted to get over the 5 per cent threshold in the shire’s four state electorates — Christian Democrats, Social Democrats, Greens, Die Linke, Free Democrats and AfD — only nine are women. Only the Greens and Die Linke are led by a team of one man and one woman; the leaders of the other four parties are men.

In Sächsische Schweiz-Osterzgebirge, in particular, politics is men’s business. The Pirna town council, for example, has twenty-seven members, just three of whom are women. Only one of the nineteen towns in Sächsische Schweiz-Osterzgebirge has a female mayor. Surely the peculiar politics in the shire have something to do with the fact that women play only a marginal role.

The politician whose image is most conspicuous in public spaces is forty-four-year-old Michael Kretschmer, the state premier. From 2002 until 2017, he was a member of the Bundestag; from 2009 until 2017 he also served as deputy leader of the Christian Democrats in federal parliament. The support he enjoyed in 2013 in the electorate of Görlitz, in Saxony’s east — 49.6 per cent of the primary vote, 30 per cent more than the runner-up from Die Linke — seemed rock-solid. But in 2017 he narrowly lost his seat to an AfD candidate. Less than a month later, Saxony’s premier, Stanislaw Tillich, resigned to make way for him. Since then, he has tried hard to convince people in Saxony that he is willing to listen, and that a vote for the AfD is not an effective means of protest.

On the question of how to deal with the AfD, Saxony’s Christian Democrats are divided. A minority of state MPs wouldn’t be opposed to forming a minority government that is tolerated by the far-right party. Kretschmer has ruled out such an option. But the matter is complicated. The vote compass developed by the Landeszentrale für Politische Bildung allows voters not just to see how closely their own views align with those of each political party but also to compare the positions held by the parties. According to the compass, the Christian Democrats and the AfD have a lot in common (about as much as, for example, the Social Democrats have in common with the Greens). The common ground between the Christian Democrats and their current state and national coalition partner, the Social Democrats, is far smaller.

Kretschmer and his supporters are also ruling out a coalition with Die Linke. They are willing to contemplate a deal with the Greens (which may be the only option left to them), but it is hard to see how they could agree on the phasing out of coalmining, for example, or the detention of “deportable” asylum seekers. The vote compass also detects very few synergies between Christian Democrats and Greens (as few as between the Social Democrats and the AfD), a problem both Kretschmer and the leaders of the Greens have acknowledged.

Among the parties that have put up posters across the shire is the neo-Nazi Nationaldemokratische Partei Deutschlands, or NPD. Back in 2004, the NPD won 9.2 per cent of the statewide vote — by far the party’s best result in any state election since 1990. It was represented in Saxony’s parliament until 2013, when it missed the 5 per cent threshold by only 0.1 per cent. The NPD has had a strong presence in the shire, but at the local elections in May it performed well only where the AfD did not run candidates.

The AfD and NPD are not the only parties whose slogans are designed to blame foreigners, including refugees, for society’s ills. The Free Democrats are just more subtle. As one of their posters reads, dog whistle–style: “Drogen, Clans, Extremismus — Hier nicht!” (Drugs, clans, extremism — not here!)

Monday 19 August 2019

The election forum for state electorate #48 is held in a small performance space in Freital. About 150 people have come to listen to six local candidates, among them the sitting member and prominent Christian Democrat, Roland Wöller, interior minister in the state government.

Some of the candidates seem poorly prepared. The Social Democrats’ Daniela Forberg, for example, seems sometimes to be hastily consulting her party’s election program when she responds to questions. Others resort to oversimplifications and misrepresentations in the expectation that they won’t be held to account. Discussing the controversial issue of whether police officers should be identifiable, Wöller conveys the impression that the Greens and Die Linke would like the police to sport name badges, when all they have suggested is that police officers should be identifiable by means of a number that can be cited if a complaint is lodged.

Germany’s asylum policies elicit the strongest response from the audience. Should asylum seekers whose protection claims are unsuccessful be immediately deported, the moderator wants to know. Neither Wöller nor Forberg, whose parties have been responsible for asylum seeker policy at the national level, point out that it would be against longstanding government policy to deport people to war zones. Only Die Linke’s candidate does justice to the complexity of the issue.

The most uncomfortable question comes towards the end, from a man who introduces himself as a local businessman. He says that when crossing a nearby square he noticed a man wearing a t-shirt emblazoned with these words: “Schwarz ist die Nacht, in der wir euch kriegen / Weiß sind die Männer, die für Deutschland siegen / Rot ist das Blut auf dem Asphalt” (Black is the night when we’ll get you / White are the men who are victorious for Germany / Red is the blood on the road). These are the lyrics of a song, “Schwarz ist die Nacht,” recorded by Frontalkraft, an East German neo-Nazi rock band. The questioner didn’t say anything to the man with the t-shirt because he was not confident that other people nearby would support him if the situation got ugly. What would you do, he asks the six panellists. And “should I perhaps not encourage my non-German employees to learn German, lest they then be able to read such texts?”

The answers are evasive and unsatisfactory. None of the panellists wants to say that the presence of neo-Nazis is a major problem, and none wants to admit that neo-Nazi symbols, statements and attitudes are tolerated, if not condoned, by more than a few isolated (and, as one candidate ventured, “sick”) individuals.

Freital has had an image problem at least since 2015, when it became the scene of militant protests against a former hotel housing asylum seekers at the height of the “refugee crisis.” The town has also been associated with the Gruppe Freital, a far-right terrorist group formed in that year. Key members of the group were arrested in 2016, and two years later eight of them were convicted and given long prison sentences.

At the height of the protests against asylum seekers, Freital was also the scene of counter-protests — often carried out by people from Leipzig and Dresden, though, if not from places further afield. Many local citizens claimed that they were caught in the middle. Freital’s image as a hotbed of neo-Nazis has meant that journalists from West Germany regularly visit the town; too often the reports they file reinforce its image but do little to understand its problems. But the image, of course, is not without foundation.

Unlike in Pirna, whose mayor has gone out of his way to promote an image of a town that welcomes strangers and encourages asylum seeker support groups and anti-fascist initiatives, Freital’s local administration claims that the town has been victimised and its people misrepresented. But in Pirna, as in Freital, the AfD and politicians sympathising with its positions have enjoyed strong support at the ballot box. The Pirna mayor’s decision to take a stance might have had an impact on what can be said in public, but so far it doesn’t seem to have swayed people’s opinions.

Tuesday 20 August 2019

Public broadcaster MDR has published the results of a survey of which issues will be most decisive in influencing the voting decisions of electors in Saxony. It was no surprise that 24 per cent nominated “climate change and the protection of the environment.” Thanks to Greta Thunberg and Fridays for Future, reinforced by last year’s exceptionally hot and dry European summer, climate change has been the dominant issue in public debate in Germany this year. One result is the meteoric rise of the Greens, who outpolled the Social Democrats in the recent European elections, with some observers speculating that Robert Habeck, the charismatic co-leader of the Greens, rather than the leader of the Christian Democrats, might succeed Merkel as chancellor after the next national elections.

It is less obvious why another 24 per cent of surveyed voters nominated “refugees, immigration, asylum policy.” For a start, most issues to do with migration are federal rather than state matters. Also, this year has seen a further decline in the number of asylum seekers reaching Germany. In the first seven months of 2019, according to the latest statistics, Germany received 86,300 new applications for asylum — a far cry from 2015 and 2016, when the combined total was more than 1.1 million new applications. The shire currently accommodates 574 people with a pending asylum application, as well as 569 whose application has been rejected, and 807 refugees who have been granted protection. Only one in thirty-eight residents of the shire doesn’t hold a German passport, making Sächsische Schweiz-Osterzgebirge one of the shires with the lowest percentage of foreigners in the country.

At lunchtime, I come across a comparatively rare sight: a party campaigning in Pirna’s pedestrian mall. On a stall drumming up support for the Greens are one of the party’s local politicians and five members from Mönchengladbach, a city in the Rhineland, more than 600 kilometres west of here. They have come to Pirna and Freital for five days to support fellow Greens. They report that the experience of engaging with prospective voters is very different from back home. “We don’t normally get shouted at when campaigning,” I’m told. “People tend to be more civil back home.” No wonder then that none of the parties is doorknocking voters here.

Greens membership is low here compared with West Germany, and anybody offering to put leaflets in letterboxes or let themselves be abused in the local mall would be welcome. On the other hand, West German advice, help and attention comes with the burden of a twenty-nine-year post-reunification relationship in which West Germans knew what was best and took some pleasure in pointing out how ignorant, reactionary and behind the times their brothers and sisters in “Dunkeldeutschland,” or Dark Germany, were.

Tonight, about 200 people have come to listen to the six local candidates in state electorate #50, which includes Pirna, at a Landeszentrale-hosted forum. But the best-known local candidate, at least among people outside Pirna, has not been invited because her party isn’t likely to win more than 5 per cent of the vote. Frauke Petry won electorate #158, Sächsische Schweiz-Osterzgebirge, in 2017 for the AfD; at the time, she was her party’s co-leader. Immediately after the election, she quit the AfD to set up the Blue Party. The AfD had moved too far to the right, she said. The Blue Party has had no electoral success so far, and Petry has not been able to persuade more than a handful of federal and state parliamentarians to leave the AfD and join her.

Petry’s nemesis was Jan Zwerg, the chairman of her local branch. He is now the general secretary of the AfD in Saxony, and the AfD’s candidate in state electorate #50. Zwerg is associated with the AfD’s right-wing faction, the so-called Flügel (wing), whose most prominent figure is Björn Höcke. Outside Germany, Höcke is perhaps best known for calling the Berlin Holocaust memorial a “Denkmal der Schande” (monument of shame). The Flügel has been investigated by Germany’s federal intelligence agency for advocating positions that violate Germany’s constitution. Saxony is a Flügel stronghold.

The standard of the debate is not high, although an improvement on yesterday’s in Freital. The questions from the audience appear designed to confirm divisions rather than elicit new information. Given the male-only panel, it seems fitting that all questions come from men. As in Freital, men also make up the majority of the audience, most of whom are over sixty.

Both here and in Freital, the audience learns little about the candidates themselves. Tonight, though, there are three exceptions. Zwerg exudes self-confidence bordering on arrogance, and on one occasion can’t be bothered answering a question put to him by the moderator. The Greens candidate is plainly out of his depth; when asked about the AfD’s proposal to build new nuclear power stations in Saxony, he obviously doesn’t know what to say.

The third exception is the sitting member, thirty-five-year-old Oliver Wehner of the Christian Democrats. When asked with whom he would consider forming a coalition after the elections, he rules out the AfD. Imagining a situation in which he and Zwerg have to negotiate the government’s policy, he explains: “And then he [Zwerg] says, for him it is important that Germans and foreigners are treated differently when they go to see a doctor. I would have an issue with that. And then, if Herr Zwerg becomes interior minister in Saxony, I might read in the paper that people have been shot at the border, then I would have my second problem.”

At this point, Wehner can’t continue because many in the audience protest vociferously. Perhaps trying to defuse the situation, the moderator says he can “understand” that people are annoyed by what Wehner has said.

Wehner’s stance is unusual. It might have something to do with the fact that he was once responsible for the former hardware store used to accommodate asylum seekers in Heidenau in August 2015, which became the focal point of violent protests. But it also makes sense for him to rule out collaborating with Zwerg from a purely strategic point of view: voters who agree with the AfD won’t vote for the Christian Democrats just because they claim they can understand people’s frustration and anger, even if it is directed against asylum seekers. Prospective Greens voters, on the other hand, might be persuaded by conservative politicians who distance themselves from the far right.

In Pirna and in Freital, politicians of all persuasions have bemoaned the fact that society has been divided. All have expressed the hope that relationships can be mended. It is true that the question of how to respond to asylum seekers has divided families, workplaces and society at large. The yearning for unity is palpable, but it’s hard to see how expressing empathy for irrational fears will solve the issue.

Wednesday 21 August 2019

I return to Freital for what is probably the best-attended campaign event in the shire. The audience is younger, bigger and more diverse, and they have come to see Robert Habeck, co-leader of the Greens. Unlike any other German politician, he has genuine rock star appeal.

Rather than giving speeches, Habeck and Wolfram Günther, co-leader of Saxony’s Greens, engage with the audience by responding to questions. Most are critical of the Greens’ policies, but Habeck and Günther take their time in answering them and don’t shy away from issues that seem overly complex. The audience — including those who would probably never vote for the Greens — show their appreciation by being patient and respectful. Here it seems possible to have a conversation that does more than buttress pre-existing views.

Habeck stresses his belief that it is essential to debate issues with one another. Here again, West Germans are at an advantage. Broadly speaking, Saxony’s postwar political culture (including civic education) was first shaped by the communists, whose hegemony remained undisputed until 1989, and then by the Christian Democrats, whose hegemony was not challenged until 2017. There was little room for debate. West Germans like Habeck, who were already adults when the Berlin Wall fell, also lived through two periods in the 1970s and 1980s in which society was bitterly divided: first over the use of nuclear energy and then over the stationing of American cruise missiles. For East Germans, on the other hand, the controversy over Germany’s response to migrants, refugees and asylum seekers is the first that prompted everyone to take sides. But the schism — within families, communities and workplaces — hasn’t been overcome by a discussion engaging both sides of the divide.

Habeck is asked about possible coalitions after the elections. He recounts his involvement in three sets of negotiations: twice in his home state of Schleswig-Holstein in the north of Germany, and once at the federal level after the 2017 election. The latter talks (between Christian Democrats, Free Democrats and Greens) ended when the leader of the Free Democrats walked out. According to Habeck, these negotiations failed because there was no genuine willingness to be innovative and find common ground. Habeck was also involved in negotiating the current coalition between the same three parties in Schleswig-Holstein, and has only good things to say about his fellow negotiators. He would know, however, that deeply conservative Christian Democrats like Michael Kretschmer have very little in common with Christian Democrats like Schleswig-Holstein’s decidedly liberal premier Daniel Günther.

In a final statement, Habeck comments on the AfD without mentioning it by name. He refers to Brexit as a salutary lesson about the viability of populist positions. He then makes the only reference I have heard during the campaign to the fact that the election in Saxony takes place exactly eighty years after Germany’s invasion of Poland and the beginning of the second world war, imploring the audience “not to vote for a party that has an unbroken relationship to fascism.”

Sunday 1 September 2019

It’s ten days later now, and the results are in. The most extreme scenarios — that the AfD would come first; that Michael Kretschmer’s position would be weakened to the extent that he would be replaced by a Christian Democrat willing to make a deal with the AfD; that Saxony would become ungovernable; or that the Social Democrats would lose so badly that they would leave the coalition in Berlin — have not come to pass. In Saxony, the Social Democrats fared less well than ever before in a state election in the Federal Republic; but the result in today’s other state election, in the East German state of Brandenburg, was much better for the Social Democrats, which remains the strongest party there and is likely to lead the next coalition government (presumably with the Greens and Die Linke).

In Saxony, the Christian Democrats won 32.1 per cent of the vote and the AfD came second with 27.5 per cent. They were followed by Die Linke with 10.4 per cent, the Greens with 8.6 per cent and the Social Democrats with 7.7 per cent. The Free Democrats failed to reach the 5 per cent threshold and will not be represented in the next state parliament. The most likely outcome will be a coalition between Christian Democrats, Social Democrats and Greens.

In Sächsische Schweiz-Osterzgebirge, the Christian Democrats retained two of the four electorates. In both cases, they were probably helped by the strong showing of two independents. Oliver Wehner, the Christian Democrat who tried to tell a Pirna audience why it would be unconscionable for him to collaborate with the AfD, lost his seat. Frauke Petry scored a paltry 805 votes.

The results are noteworthy for several reasons. First, the number of people who voted was significantly higher than at the 2014 election, with the AfD as the main beneficiary. Second, both in Brandenburg and in Saxony, some people seemed to have voted strategically. Given the real prospect that the AfD would become the strongest party, a sizeable number of followers of the other parties probably voted for the party that had the best chance of beating the AfD: in Saxony, this strategic voting strengthened the Christian Democrats; in Brandenburg the Social Democrats were the beneficiaries.

Third, immigration was the key issue for 34 per cent of AfD voters but for only 2 per cent of those who voted for Social Democrats or Christian Democrats. Fourth, the main losers weren’t the Social Democrats but Die Linke, which was once the undisputed second-largest political force in the state, and is now just one of three minor parties. And, finally, about a third of electors voted out of a sense of disappointment and two-thirds from conviction. For AfD voters, though, disappointment was the more important factor.

No doubt talk about a Rechtsruck, a lurching to the right, will intensify over the next few days. It is true that the AfD trebled its vote in Saxony. It is also true that more than a quarter of electors cast their vote for a party that advocates extremist positions and whose most significant faction, the Flügel, is under observation by the federal intelligence agency.

But let’s put things into perspective. The rise of the AfD has also prompted the rise of a powerful counter-movement. It has politicised people who consider themselves liberals or even conservatives, particularly in West Germany. It has prompted numerous innovative civil-society initiatives to strengthen democracy. It has contributed to the electoral successes of the Greens. I would even argue that the much-acclaimed Willkommenskultur, the culture of welcoming refugees in 2015, was itself also already a reaction against the xenophobia advocated by the AfD and the Pegida movement.

It’s also important to remember that Germany has moved to the left politically over the past thirty years, becoming a more tolerant society whose majority has embraced the fact that this is a country of immigration. In the early 1990s, during a previous “refugee crisis,” when hundreds of thousands of people fleeing the former Yugoslavia sought refuge in Germany, Christian Democrats, Social Democrats, Free Democrats and respectable media outlets such as Der Spiegel fanned fears of migrants and advocated positions that today would not be acceptable outside the AfD.

The Rechtsruck thesis also suggests that those who now vote for the AfD changed their views in recent years. Numerous surveys show this not to have been the case. Sentiments, attitudes and opinions have barely changed; what has changed dramatically is the range of views that can acceptably be voiced publicly (although “publicly” often means within the echo chambers provided by Facebook and other social media). That, of course, is a cause for concern. But the experience of the past four years suggests that German democracy, by and large — in the West more so than in the East — is remarkably resilient. It’s important to reflect on the events of 1 September 1939 and on its causes — but not because the past is about to return. •

The post The significance of 1 September appeared first on Inside Story.

But the government still sees no need for change. “We have one of the best safety nets, if not the best, of anywhere in the world,” prime minister Scott Morrison declared in May. The unemployed “don’t just live on Newstart alone,” he said. “It goes up twice a year and 99 per cent of people on Newstart are also on other payments.” Meanwhile, Labor has backed away from its promise of a comprehensive review, with shadow treasurer Jim Chalmers declaring, “If people want to see a boost to Newstart, then they have to convince the government.”

How do the figures look in 2019? Single unemployed adults on Newstart receive $555.70 each fortnight, or just under $40 a day. Most of them also receive the energy supplement, a modest annual $228.80, or about 60 cents a day, which is hardly likely to significantly boost their living standards. People aged sixty or over receive the slightly higher rate of just over $600 a fortnight, and move to that higher rate after nine continuous months on Newstart. Like all low-income families, people on Newstart with children also receive family tax benefits.

If they’re renting privately, single people on Newstart are entitled to up to $137.20 each fortnight in rent assistance. To get that amount, though, their rent has to be more than $305 a fortnight, leaving them with just $26.50 a day for everything else. Higher rents don’t attract more rent assistance, and so income after housing costs can be even lower.

That assumes, of course, that you can find somewhere to rent for $305 a fortnight. An Anglicare rental affordability survey found no homes in any of Australia’s capital cities that were within the means of a single person on Newstart. To pay the lowest prevailing rate would take more than 30 per cent of a recipient’s income, which is regarded as the point at which “housing stress” sets in.

As the NSW government’s rent and sales report shows, if you were on Newstart and renting a property on the twenty-fifth percentile (in other words, cheaper than three-quarters of rental properties), you would have just $14.40 a day left over for food, clothing, transport and other bills. While nearly one in ten Newstart recipients are under twenty-five and may be able to live with their parents, most of the remaining recipients are unlikely to have that option.

Unemployed Australians have always received lower payments than age or disability pensioners. But since 1997, when the Howard government started indexing pensions to average weekly earnings but continued to index unemployment payments to the consumer price index, the gap has widened significantly. Pensioners received another boost in September 2009, following the report of the Pension Review Taskforce. One of the largest pension increases in Australian history further widened the gap between pensions and Newstart. In 1997, a single unemployed person received 92 per cent of what was paid to a single pensioner; today, that ratio is 61 per cent, amounting to a gap of roughly $360 a fortnight.

That taskforce provides a good model for assessing the adequacy of Newstart. To test whether pension rates were providing “a basic acceptable standard of living, accounting for prevailing community standards” it looked at a wide range of possible benchmarks, including average male full-time earnings, the Henderson Poverty Line or a poverty line set at a fraction of median household income (the most representative income level in the population), and some form of “budget standard.” It also compared the payments to those paid in other OECD countries.

What would the same comparisons tell us about Newstart?

Earnings benchmarks: Since 1997, payments for single unemployed people have fallen from 23.5 per cent of the average male wage to 19.3 per cent. Because unemployed people tend to have earned less when in work and because an employed person pays income tax, a more appropriate comparison is with the take-home income of someone working for the minimum wage. On that measure, Newstart has fallen from around 54 per cent in 1997 to less than 43 per cent in 2019.

Relative poverty: Chart 1 shows the single adult payment expressed as a percentage of median household disposable income (adjusted for household size) from the mid 1990s up until 2015–16 (the most recent figures). Over that period Newstart fell from 46.5 per cent of median household income to 31 per cent — or from a little below the standard relative income poverty line to a long way below.

Chart 1: Single adult rate of Newstart as a percentage of median equivalised household disposable income, 1994–95 to 2015–16

Source: Department of Social Security and Australian Bureau of Statistics

In 1994, a single unemployed person would have received an income that was about $9 a week (in 2015–16 values) more than a person at the 10 per cent point in the distribution of all incomes. In 2015–16, he or she would have been $126 a week below that level.

Budget standards: A budget standard attempts to calculate how much income a particular family living in a particular place at a particular time needs to achieve a particular standard of living. It is derived by specifying every item needed by the family, pricing each item and adding those figures up to produce an overall budget.

In 2017, the Social Policy Research Centre at UNSW published new estimates of minimum living costs for unemployed people and low-wage workers covering five basic family types. The estimated weekly budgets for unemployed people were $434 (single person); $660 (couple); $767 (couple with one child); $940 (couple with two children); and $675 (sole parent with one child). The report found that social security payments for unemployed families are below these minimum standards in all cases, with the shortfall varying between $47 and $126 a week. “These shortfalls cast serious doubt over the adequacy of existing social safety net provisions and suggest that increased payment levels are urgently needed, especially for those in receipt of NSA [Newstart].”

But perhaps we still perform better than other countries, as Scott Morrison claims? International comparisons are complicated by the fact that most other countries use contributory insurance systems to assist unemployed people; for those who are unemployed for a short period, benefits are paid at a percentage of past earnings. These systems tend to provide higher rates of assistance during shorter periods out of work but often pay a significantly lower rate over the longer term. In Australia, unemployed people receive the same level of payment for as long as they continue to be eligible.

Chart 2 shows OECD estimates of the level of benefits for a single individual who had previously earned two-thirds of the average wage. If we look at the “replacement rate” — the percentage of previous earnings covered by unemployment payments — then Newstart is actually the second-lowest payment in the OECD. If we count rent assistance, then Newstart is the lowest payment in the OECD, coming in at 39 per cent of the previous net wage compared to the OECD average of 68 per cent.

Chart 2: Replacement rate of unemployment payments for a person earning 67 per cent of the average wage, 2018 or nearest year
Single person on benefits in second month of unemployment as a percentage of net wage, OECD countries

Source: Calculated from OECD data

What happens if someone has been out of work much longer, say for five years? Around 150,000 of Newstart recipients, or just over 20 per cent, are still on benefits after five years. Chart 3 shows that Australia’s ranking improves considerably. Some countries provide no benefits at all for the long-term unemployed, and in the United States rates drop to negligible levels. But Australia is still below the OECD average — hardly the best safety net in the world.

Chart 3: Replacement rate of unemployment payments for long-term unemployed for a person earning 67 per cent of the average wage, 2018 or nearest year
Single person on benefits in fifth year of unemployment as a percentage of net wage, OECD countries

Source: Calculated from OECD data

What these figures show is that we need action rather than a review of Newstart. Using the same measures of adequacy used by the Pension Review Taskforce a decade ago, the case is overwhelming. And it wouldn’t just benefit people trying to live on Newstart: the governor of the Reserve Bank says that an increase in the payment would also be good for the economy.

Newstart recipients are falling into deepening poverty. The gap between Newstart and pensions, between Newstart and wages, and between Newstart and the costs of maintaining a minimum standard of living are continuing to widen. And the picture is even worse once we take account of housing benefits. For many unemployed people, Australia not only doesn’t have one of the best safety nets in the world, it has one of the worst. •

The post Is Newstart really the pacesetter Scott Morrison says it is? appeared first on Inside Story.

Here in Australia, there’s less unanimity. Shadow assistant treasurer Andrew Leigh has highlighted how the richest Australians have taken a rising share of overall income since around 1980, and the newly elected national president of the Labor Party, Wayne Swan, wants to see a renewed effort to reverse that trend. Yet treasurer Scott Morrison says inequality is falling rather than rising.

Part of the disagreement comes down to the question of what we are measuring and over which period. In the decade since the global financial crisis, income inequality in Australia has remained stable or even fallen slightly, but that fall came off a historic high for inequality. There is little doubt that inequality is worse now than it was in the early 1980s. As the IMF reported in its Fiscal Monitor for 2017, “Australia is among countries with the highest growth in income inequality in the world over the past thirty years.”

The Australian Bureau of Statistics’s latest analysis of inequality, released in June, reinforces the point. This is the ABS’s most comprehensive study yet, and not only takes account of the impact of income tax and social security benefits on households, but also factors in government-provided health, education and other community services, along with the GST and other indirect taxes. According to this broader measure, inequality is lower than we thought, but it has risen in recent decades.

At least Australia has enjoyed growing prosperity, Scott Morrison might reply. After all, as the Economist has pointed out, our economy has exceeded the record set by the Netherlands by racking up “the longest stretch of growth in modern history.” This is the message the government highlighted in the budget papers and has used in international promotional campaigns. But when we look at the trends over a longer period, that claim also becomes questionable.

Here, a timely new book from Oxford University Press offers a valuable comparative perspective. Inequality and Inclusive Growth in Rich Countries aims to identify which policies have been successful in limiting the rise in inequality by promoting income growth for those on middle and lower incomes. It analyses in detail the experiences of ten rich countries — Australia, Belgium, Canada, France, Germany, Italy, the Netherlands, Spain, Britain and the United States — over recent decades, showing that stagnant incomes and rising inequality can be dealt with where the political will exists. (Disclosure: I wrote the chapter on Australia.)

A particular theme of the book is a phenomenon that has been called “decoupling,” the process by which the incomes of working-age households have risen more slowly than per-capita gross domestic product. This means that economic growth hasn’t benefited households up to the median level of income — the point at which half the earners receive less and half receive more — as much as it did in the thirty years following the second world war.

What explains this divergence between the growth in per-capita GDP — the measure trumpeted by politicians — and the growth in median household incomes? Basically, the differences come down to the fact that the two sets of figures are collected from different sources for different purposes.

Per-capita GDP is a measure of total domestic economic output, regardless of where it’s consumed; household income surveys only gather information on Australian residents. Certain income sources —imputed rent, retained profits, or in-kind benefits — are included in GDP but not reported in household surveys. Non-responses to household surveys, and misreporting by survey staff, also affect comparability.

Once collected, the two sets of figures undergo different adjustments. Per-capita GDP is adjusted using the GDP “deflator,” which takes account of price changes among all goods produced in Australia. Household income is adjusted using the consumer price index, which takes account of price changes among goods consumed by households. A higher growth in CPI relative to the GDP deflator indicates that households are faced with relatively faster-rising prices.

While GDP growth is expressed in per-capita terms, median income is commonly “equivalised,” with total household income divided by the square root of the household size to reflect the fact that it’s cheaper per person to live together. Because the composition of households is changing over time, a further incompatibility arises: as the average household gets smaller, the economies of scale fall, producing a lower growth in median income compared to a per-capita measure.

Finally, it’s important to bear in mind the difference between “per capita” and “median.” Per-capita GDP growth will outpace median income growth if incomes grow faster in the top half of the distribution.

In Inequality and Inclusive Growth in Rich Countries, Brian Nolan (the book’s editor), Max Roser and Stefan Thewissen apply this distinction to the available data. They show that between 1981 and 2010 real per-capita GDP in Australia grew by an average of 1.83 per cent each year, while real median equivalised household income grew by an average of 1.21 per cent. The gap — 0.62 per cent — was the tenth-highest among twenty-six OECD countries, though only half the disparity for the United States. It is worth noting that about 40 per cent of the divergence in Australia is due to inequality, whereas the figure is about 25 per cent in the United States.

Over the whole period from 1981 to 2010, the growth rate of per-capita GDP in Australia was the equal eighteenth-highest of the twenty-six countries and the growth rate of median income was seventeenth-highest — not exactly world-beating.

Most importantly, household income growth for working-age households varies dramatically across those years. As this chart shows, the period from the early 1980s to the mid 1990s is very different from the subsequent period.

Source: Our World in Data

In the early 1980s real incomes fell or were stagnant for virtually all households except in the highest decile (the richest 10 per cent). Real incomes grew very modestly in the second half of the decade, again with the exception of the richest 10 per cent. Real average income then fell among all income groups in the early 1990s, but the drops were greater for households below the median than for those above. Incomes grew much more strongly for all groups in the second half of the 1990s and the early 2000s, although the gains were nearly twice as great for the highest-income group as for the lowest. This growth — which had started in 1992 — was only sufficient to get lower-income Australians back to where they had been in 1989.

The period from 2003 to 2008 stands out. Real average incomes grew by between 6 and 11 per cent per year for a full five years. Again, the richest did best, but all household groups enjoyed unprecedentedly high rates of growth. Households below the median did better than those in the next four deciles.

Real average incomes for households in the bottom half of the working-age income distribution declined after the global financial crisis, although this time the richest income group also experienced a fall. While the figures are not shown here, income growth has remained modest since 2010, except among poorer age and disability pensioners, who benefited from the Rudd government’s increase in the pension in 2009.

Overall, these divergent patterns of income growth resulted in rising levels of inequality among working-age households. Although incomes rose significantly, all but the richest 10 per cent lost ground. For the sixth to the ninth deciles, income shares were broadly stable until 2003, then fell until the global financial crisis and didn’t subsequently recover.

The share of the richest 10 per cent of working-age households increased from 20.4 per cent to 24.7 per cent. As a result, the Gini coefficient — the most common measurement of inequality — increased from around 0.27 to 0.33 over the period, somewhat less than for the total population (including those of pension age).

Even though income distribution widened among working-age households below the median, these figures suggest that the increase in inequality resulted mainly from the richest pulling far ahead of the median rather than from the poorest falling significantly behind. For the period as a whole, the richest 10 per cent were the only group to increase their share of income.

The most striking feature of these results is the extreme divergence between periods. A period of negative or very low income growth was followed by a period of positive growth, a deep recession, a longer period of solid growth, and five years of supercharged growth across the distribution, culminating in a final period that looks more like the 1980s.

Also striking is the fact that the half-decade from 2003 to 2008 accounts for a very substantial component of the improved living standards households experienced across the whole period. For the lowest three income deciles, those years contributed more than the entire net increase in real incomes since 1981–82 — in other words, without the mining boom they would have gone backwards. For the next two deciles they contributed more than 80 per cent of the total, and for the remainder they contributed two-thirds.

Moreover, the 2003–08 period constitutes a very substantial moderating factor in terms of the overall discrepancy between the growth in per-capita GDP and the growth in median equivalised disposable household income, with real median income growing faster than per-capita GDP by close to five percentage points per year. Indeed, if the 2003–08 period had followed the long-term trend then the discrepancy between per-capita GDP and median income would have been nearly three times as great, and significantly larger than in the United States, although not as large as in several Eastern European countries.

The 2003–08 mining boom and its impact on Australia’s terms of trade look like a once-in-a-generation event that’s unlikely to be repeated, at least in the immediate future. This raises the question of whether Australia is truly a miracle economy, or whether is has once agin showed itself to be a lucky country.

These divergent trends raises two obvious questions. What are their causes, and what role has government policy played in offsetting or reinforcing them?

Let’s start with trends in work-related earnings. Because these are the most important source of income for working-age households, changes in the level and distribution of earnings are likely to be a major contributor to overall income inequality.

The chart below shows trends in the ratio of the ninetieth percentile of full-time earnings to the tenth percentile. This ratio increased between 1975 and 1983, before the first income survey. For most of the next ten years, it remained stable or, if anything, declined slightly. Starting in around 1993, wage disparities steadily increased, then fell slightly at the end of the period. At the beginning of this period, a high-wage worker was being paid about 2.6 times the wage of a low-paid worker; by 2016, the ratio had increased to around 3.3 times.

Source: OECD (2017), “Earnings: Gross Earnings: Decile Ratios,” OECD Employment and Labour Market Statistics database (accessed 14 September 2017)

Trends in the labour market also play a role in inequality. The most up-to-date analysis of long-term labour-market changes in Australia comes from economists Michael Coelli and Jeff Borland at the University of Melbourne. They examine two related indicators, job polarisation and earnings disparities.

Job polarisation occurs when high-skill and low-skill employment accounts for a larger share of the job market at the expense of middle-skill jobs. Coelli and Borland’s analysis of data from the 1960s through to 2011 concludes that the share of employment in low-skill jobs increased by 2.2 percentage points and the share in high-skill jobs increased by 17 percentage points. The share in middle-skill jobs, meanwhile, fell by 19.2 percentage points. This polarisation primarily occurred in the 1980s and the 1990s, and was primarily a male phenomenon.

In their analysis of earnings disparities, the two researchers point out that in 2013–14 the lowest decile of income earners worked an average of ten hours per week, and the second decile worked around fifteen hours per week — in both cases mainly as a result of unemployment, non-participation in the labour market, or part-time work. At the other end of the income scale, highly paid full-time workers worked around forty hours per week.

The next two charts show trends in the labour-market status of men and women aged sixteen to sixty-four between 1978 and 2016. They use ABS labour force survey data and figures from the OECD’s wages database to identify the extent of low pay, defined as the percentage of full-time workers earning less than two-thirds of the median. All percentages refer to a percentage of the population rather than a percentage of those in the labour force.

The charts focus on the proportion of the working-age population who can be defined as being in “good jobs” — in other words, full-time workers who aren’t in low-paid employment. They show that the proportion of men in good jobs was above 70 per cent at the beginning of the period. This fell throughout the 1980s and again in the recession of the early 1990s by about 10 percentage points. The figures continued to fall at a slower rate until 2016, with the overall result that between 1978 and 2016 the proportion of men in good jobs fell by nearly 16 percentage points.

Source: Author’s calculations from labour force survey data and the OECD wages database

About a third of that decline is explained by the increase in the proportion of men who weren’t in the labour force (up from 13 to 18 per cent), and another third by men in part-time work who weren’t looking for longer hours. Roughly another fifth of the group, or 3.3 percentage points, was made up of part-time workers who would like to work longer hours. In total, more than half of the total change reflected an increase in part-time work.

While the proportion of men who were unemployed doubled between 1978 and the peak of the 1990s recession, it subsequently fell to the point where it was no higher in 2016 than it had been in 1978. Low pay among full-time workers has increased, but not strongly. Its highest point was just before the global financial crisis, but it only contributed around 8 per cent of the overall change.

The second of these two charts shows the corresponding data for women. The trends run in the opposite direction, with the proportion of women who are not in the labour force falling from nearly half of those of working age to less than 30 per cent. The proportion who are underemployed and looking for longer hours increased more significantly for women than for men, while the proportion of women working part-time but not looking for longer hours rose by close to 10 percentage points. Low-paid full-time female workers made up a slightly higher share of the population at the end of the period compared to the beginning. Overall, women in “good jobs” rose from about 24 per cent to 30 per cent of the female population, which only partly offset the fall in the proportion of men in well-paid full-time jobs.

Source: Author’s calculations from labour force survey data and the OECD wages database

Over the whole period, the share of the total population of working-age in “good jobs” fell from 47 per cent to 41 per cent.

It could be argued that not all part-time jobs are “bad jobs,” and it’s certainly true that the majority of those who work part-time are not seeking longer hours. If we treat people who are happily working part-time as having “good jobs,” then the increase for women would be greater — from around 38 per cent to 54 per cent — and the fall for men would be lower — from 74 per cent to 64 per cent. Of course, this is an upper limit: not all part-time jobs, even if those in them are not seeking longer hours, are well paid.

Both young men and young women may not be seeking longer hours because of study commitments, while many workers may accept low-paid part-time jobs because of family and other care commitments. Nevertheless, the share of part-time work is very high in industries where low pay would be expected. As Jeff Borland has pointed out, 47 per cent of men and 62 per cent of women employed in retailing were part-time, as were 57 per cent of men and 67 per cent of women working in accommodation and food services, and 41 per cent of men and 51 per cent of women working in healthcare and social assistance. These jobs are not likely to be well paid.

Finally, let’s look closer at the period since the global financial crisis. Technically, Australia didn’t fall into a recession during that downturn, partly because the federal government launched one of the largest fiscal stimulus packages among OECD countries. The boost was equivalent to 4.6 per cent of 2008 GDP, with a very large component delivered through payments to households.

What has happened since then to household income levels and their distribution? The table below shows that by 2015–16 real mean incomes were only 2.7 per cent higher than they had been eight years previously, and real median incomes only 2.8 per cent higher. The Gini coefficient fell from 0.336 to 0.323 — although it was still higher than at any time prior to 2007–08. The reduction in inequality largely reflected a fall in the income of the top 20 per cent, with the self-employed bearing most of the losses.

The income share of the poorest 40 per cent of the population increased somewhat over this period. The ratio of incomes of the tenth percentile to the median increased quite significantly from 46 per cent to 51 per cent, the highest it has been since the income surveys began.

Source: Australian Bureau of Statistics, Household Income and Wealth, Australia, 2017, Catalogue No. 6223.0

Overall, what is most striking about these figures is the very slow growth in real mean and median household incomes — for the median, less than 3 per cent in total, or about 0.35 per cent per year for the previous eight years. This is only slightly higher than the growth rate between 1985 and 1989 (0.23 per cent per year), considerably below the growth rate between 1995 and 2001 (2.1 per cent per year), and much less than the growth rate between 2003 and 2008 (7.2 per cent per year).

Australia might not have experienced a large drop in living standards following the global financial crisis, but the rise in household incomes has slowed considerably and inequality has remained broadly stable. Moreover, the federal government’s social policy priorities have moved more strongly to “budget repair,” with proposed cuts in social security spending likely to have the largest impact on lower-income families. This helps explain why the period since 2012 more closely resembles the late 1980s than the more rapid growth from the mid 1990s to 2008.

“Budget repair” almost inevitably implies that the social security system will become less effective in reducing inequality. Because the Australian social security system targets the poor more heavily than any other rich country, the OECD expects that cuts in social security would increase inequality to a correspondingly greater degree.

The government’s current tax plans will also make personal income tax slightly less progressive. More significantly, the proposed “speed limit” on Commonwealth tax levels will  severely limit the government’s capacity to meet the challenges of population ageing and respond to further increases in inequality.

These decisions contrast with the 1980s and 1990s, when the Accord between the Hawke–Keating government and the trade unions brought tax reform — including broadening of the tax base — and improvements in the “social wage,” which partly offset the trends to higher inequality associated with the labour-market changes during that period. •

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Most people, not least American workers, would have seen this as unalloyed good news — even though it was probably exaggerated by the impact of colder-than-usual weather in parts of the United States during January, and by the fact that increases in the minimum wage came into effect in eighteen states,at the beginning of the month. (The weather meant that some workers, typically those on lower pay, were unable to get to work during the week in which the monthly labour force survey was conducted, and would have been excluded from the results.) Nonetheless, the news lined up with the employment cost index (the US equivalent of Australia’s “wage price index”) released a week earlier, which rose by 2.7 per cent over the year to the December quarter of 2017, also the largest annual increase in nine years.

These data represent evidence that workers might be starting to get a slightly larger share of the American economic pie after a decade in which real wages have risen by less than 0.4 per cent per annum — well below the 1.2 per cent annual rate at which labour productivity has grown over the decade. They lend some support to the view that if the unemployment rate is low enough for long enough — and in America it’s been below 5 per cent (“full employment”) for all but one of the past twenty-one months — wages will start to move upwards more rapidly. Wages growth also appears to be starting to pick up in Germany, where the unemployment rate has been below 4 per cent for the past year.

So, although Australia’s unemployment rate is still well above 5 per cent — leaving aside the underemployment represented by people working fewer hours than they can and want to — there is some evidence for the view that the “laws of supply and demand” (as Malcolm Turnbull and Scott Morrison put it) haven’t been abolished entirely as far as the labour market is concerned.

But financial markets haven’t seen any of this as a cause for celebration. On the contrary, they’ve seen it as confirmation that the era of ultra-cheap money ushered in by the global financial crisis is drawing to a close.

For most of the past decade, the four most important advanced economy central banks — the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England ­— have been creating money in order to acquire government bonds (and, in some cases, other financial assets). Initially, their aim was to push long-term interest rates down to unprecedentedly low levels; subsequently, the aim was to keep them there, reinforcing the economic stimulus provided by cuts in short-term interest rates to zero or, in the case of the ECB and BoJ, below zero.

When central banks first began pursuing these unorthodox strategies during the darkest days of the financial crisis, some observers drew misguided parallels with the money-printing adventures of Weimar Germany or Robert Mugabe’s Zimbabwe, and concluded that the inevitable result would be higher inflation and currency depreciation. In fact, the only inflation has been in asset prices — in particular, bonds, equities and residential real estate.

As well as lowering the rate at which future cash flows (such as those generated by stocks or bonds) are discounted (thus inflating their “present value”), the search for a higher return in a low-interest-rate environment has prompted investors to take on additional risk. That has added to upward pressure on asset prices: but, as was also the case in the years preceding the financial crisis, many investors appear not to fully comprehend the extent of the additional risks that they have taken on.

The US Federal Reserve ceased its bond-buying programs in October 2014, and in October last year took the first steps on what will inevitably be a long process of gradually selling off most of the US$3.5 trillion of securities it acquired. It has also raised the federal funds rate (the equivalent of the Reserve Bank of Australia’s official cash rate) five times over the past two years, from zero to 1.25 per cent. And since the middle of last year it has been flagging its intention to lift the funds rate at least another three times this year.

Until the beginning of this month, though, investors seemed unwilling to take the Fed at its word. In particular, the US share market advanced — on a weekly if not daily basis — to successive record highs.

If anything, the risks of further upward pressure on US rates have increased in recent weeks. The US is embarked on one of the most ill-timed fiscal stimulus programs in living memory. According to the nonpartisan Committee for a Responsible Federal Budget, the corporate and personal income tax cuts enacted at the end of last year will add almost US$1.5 trillion to the US budget deficit over the next decade; the budget deal reached last week will add another US$420 billion; and the Trump administration wants to add another US$200 billion in incentives for infrastructure spending on top of that.

These measures will boost aggregate demand by a much larger margin than they are likely to lift aggregate supply — at a time when the present US economic upswing is on the cusp of becoming the second-longest on record; when the unemployment rate is lower than it’s been at any time since the late 1960s (apart from a few months at the turn of the century); when the US working-age population is growing at its slowest rate since the end of the second world war; and when GDP is already above its “potential” level (according to the Congressional Budget Office).

All up, the result is less likely to be faster growth in the US economy than to be some combination of higher US inflation and a larger US current account deficit. This will increase the risk not only of higher US interest rates, but also of more protectionist US trade measures (something which, for all the Trump administration’s rhetorical bluster on that score, it has thus far largely eschewed).

The big risk here — for the US, and for the rest of the world, including Australia — is not a replay of the financial crisis of a decade ago. There is no compelling reason to think that the banking system of any advanced economy is on the edge of an abyss similar to the one into which they fell in 2008.

If there’s a parallel from recent history, it’s more likely to be the “tech wreck” of 2000, in which irrational exuberance on the part of equity investors played a key role, as did rising interest rates at the end of a long period of economic growth. But that incident had a fairly mild impact on the US and world economies, not least because the US budget was in surplus at the time, and the Federal Reserve had room to move in order to counter the ensuing downturn. Policy-makers have far less room to move today.

So, to adapt Bette Davis’s response, in All About Eve, to the question “Is it over, or is it just beginning?” — “Fasten your seatbelts: it’s going to be a bumpy ride.” •

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The question is still timely. The multi-billion-dollar employment services market offers very patchy results for the hundreds of thousands of jobseekers in the system. Through Jobactive, the post-2015 version of the scheme, the federal government pays $7.3 billion over five years to sixty-five private and not-for-profit service providers to assist about 750,000 jobseekers each year in over 1700 locations. With that amount of public money, and with fifteen years in which to fine-tune the service, Jobactive should be an exemplar of how outsourced human services should work in a mature market.

A big, standardised system churning through the unemployed and rewarding short-term placements with individual payments will not help produce a skilled, entrepreneurial, resilient workforce.

But like its predecessors Job Network and Job Services Australia, Jobactive is a big, impersonal system struggling to deliver high-quality services for the individuals using it. Despite the occasional media report criticising elements of the program, it largely escapes scrutiny. It is a system, replete with grand alibis, for which none of the mutually dependent participants inside and outside government takes overall responsibility.

The Department of Jobs and Small Business will soon consider the successor to Jobactive. Simply creating Jobactive II would be a mistake and a missed opportunity: both the government and the opposition need to develop policies that put jobseekers’ livelihoods and aspirations first, and that means working out the best role for government in helping the unemployed, including learning from promising initiatives here and overseas.

Removing human services from direct government control and embedding them in competitive marketplaces was a key element of the microeconomic reforms of the 1990s. That wave of deregulation, privatisation and competition-based reform was kickstarted by Labor and intensified under the Coalition. In the process, we bade farewell to the Commonwealth Employment Service and welcomed Job Network.

Much was promised when the employment-services market was created. Government and industry saw it as a more cost-effective way of delivering social services. Private and non-government organisations, they reasoned, had better on-the-ground knowledge of the labour market and smarter ways of “activating” jobseekers. The new market would keep the long jobless queue moving by finding “real” jobs for the unemployed.

By 2015, according to an analysis I prepared with colleagues at the Centre for Policy Development, the system was operating at two speeds. For unemployed people with comparatively good skill sets and little disadvantage, the results were okay. For the disadvantaged jobseekers struggling to overcome multiple and often complex personal barriers, the outcomes were poor.

The most recent Jobactive data from the Department of Employment, which covers the twelve months to March 2017, confirms that story. Jobseekers are classified into Streams A, B or C — Stream A being those who are most employable and C being those most in need of assistance because of disadvantage. Across the three streams, 49 per cent of jobseekers are employed three months after participating in Jobactive. For the unemployed in Stream A (those with the least disadvantage), the average rate is 59 per cent; for jobseekers in Streams B and C, as the chart shows, this drops off sharply.

Employment outcomes by stream, three months after Jobactive

Source: Department of Employment, April 2016 to March 2017

Stream B jobseekers need more assistance to find a job because they lack skills or suffer from other difficulties. Stream C takes in the hardest-to-place jobseekers, including the most disadvantaged long-term unemployed, people from culturally and linguistically diverse backgrounds, sole parents and poorly educated applicants. Only 27 per cent of people in Stream C found work in the twelve months to March 2017. Almost 44 per cent remained unemployed, and 29 per cent had left the labour force.

Where they do find work through Jobactive, it tends to be insufficient for their needs. Of the 27 per cent in Stream C who did find work, 25 per cent found a permanent role and 62 per cent found a casual, temporary or seasonal role. On average, 53 per cent of Stream C job-getters are seeking more work. The number is highest for those with part-time work, two-thirds of whom want more hours.

Why, fifteen years after the introduction of a fully outsourced system, are we left with an expensive, two-speed system? It’s no mystery: the system is not built for jobseekers, it is built for government to keep the jobless queue moving while reducing long-term welfare dependency.

The Department of Employment purchases services from for-profit and not-for-profit providers whose operations are prescribed in confidential, highly detailed contracts. Although the department has the job of monitoring service providers, poor performance is often overlooked. The loads of compliance data it collects from the providers track the behaviour of jobseekers more than the effectiveness of providers or their long-term impact on their clients.

Nor does the funding model encourage a continued investment in jobseekers. The department pays providers largely on the basis of outcomes achieved for individual jobseekers, with payments varying according to the type and length of job placement. Regional locations have higher loadings, and providers also receive payments for placing jobseekers in work-for-the-dole projects. With a focus on getting the cheapest rate per jobseeker, the department proudly claims that the 2016–17 target of $2500 per outcome was significantly outdone by the actual figure, $1453 per outcome.

Most providers rely on low margins and high turnover, focusing on easier-to-place clients while side-lining the too-hard cases despite the offer of higher incentives. This has been a longstanding problem in the system: providers are naturally looking for the most efficient way to allocate resources, and investigations have shown that some of them cut corners and rort the system. The recent collapse of one of Britain’s major public contractors, Carillion, offers a cautionary tale about misplaced faith in contracting, and the perils of focusing on costs over outcomes.

The system churns through jobseekers like customers at a fast-food cafe, with frontline staff relying mostly on standardised services and support options. Research from 2016 shows that the average caseload for surveyed staff was 147.8 clients, with each of them seeing nearly nineteen clients per day on average, either individually or in groups. Thirty-six per cent of frontline staff have no more than a TAFE qualification or vocational certificate, the research found, and almost a quarter have no post-secondary qualifications.

Among the biggest failures of the employment-services market is that different providers offer similar services, leaving jobseekers with little genuine choice. This standardisation is exacerbated by the fact that Jobactive lacks specialist service provision. When the Refugee Council of Australia examined the program’s operation in key migrant communities in August 2017, it found that refugees with no English-language skills are being incorrectly placed in Stream A, where the lowest level of support is provided. The creation of the Jobs Victoria Employment Network was partly a response to the lack of specialist federal help for vulnerable jobseekers.

Jobseekers’ negative comments about Jobactive in satisfaction surveys aren’t surprising. In the latest surveys, covering the year to March 2017, only 55 per cent of all jobseekers were “satisfied or very satisfied” with the overall quality of service. Only 38 per cent were satisfied or very satisfied with the help they received in finding a job, and 37 per cent with the help they received in gaining skills for work. A shade over half of these jobseekers didn’t believe that the service was suited to their personal circumstances. No private business would tolerate such low customer satisfaction levels, but for Jobactive agencies it is the satisfaction of government that matters.

Even though these providers deliver public services, and even though obvious problems exist, they are shielded from public scrutiny by the commercial-in-confidence provisions in their contracts with the department, which also protect them from freedom of information requests.

With a federal election looming, both major parties must come up with new, compelling answers to Albanese’s question, which lingers like Banquo’s ghost. Just what is the role of government in helping people find and keep a job? What does the government owe the citizens it serves, especially the vulnerable and disadvantaged?

Members of the public already have their own answers. In October last year the Centre for Policy Development ran an online survey designed to understand community attitudes to government. The sample was representative of community demographics. The 1025 responses collected by Essential Media included clear messages that the major parties should consider carefully.

People think that providing health, education, social security and other essential services, and ensuring shared economic prosperity, are among the most important tasks of the federal government. They think that job policies should be a major priority for the federal government. And they are deeply sceptical about outsourcing social services.

In fact, more than four out of five respondents thought it was important for the government to retain the skills and capability needed to directly deliver social services. Why? Because respondents thought government was a “better provider” of social services than charities or not-for-profits in terms of cost efficiency, accessibility, accountability and affordability for users. This wariness of outsourcing social services is deeply held: credible attitudes research from 1994, conducted by the Economic Planning Advisory Commission for prime minister Paul Keating, shows similar sentiments.

None of this is any surprise. Unemployment might be relatively low at the moment but underemployment is high. A growing number of Australians are moving into the gig economy, with its agile but insecure work. Inequality is on the rise and, faced with stagnant wage growth, people are placing a higher premium on receiving quality services. Automation and the use of artificial intelligence will change, destroy and create jobs, but our capacity to harness this disruption is nascent. If Australians genuinely believe that government has a role in the labour market and in creating shared prosperity, then it is only fair that we revise the way we provide social services.

A new strategy for reform begins with a statement of the obvious: markets alone will not produce the social gains we need. A big, standardised system churning through the unemployed and rewarding short-term placements with individual payments will not help produce a skilled, entrepreneurial, resilient workforce. Nor will it help the most disadvantaged. Government has a larger and better role to play, and some in the business community already agree.

Which leads us to how we can use public sector values and talents more effectively. Public and private capabilities should not be viewed as competing: they are essential components that should work together. Australia’s public sector remains unique in its mission and its public service values. The Department of Jobs and Small Business has a sound understanding of the labour market but could offer more services with the right re-investment in skills and capacity. It could improve accountability and transparency, and steward a system to produce results in the community interest. But its own memory of alternative service models will need strengthening; its policy and leadership capability have been run down over two decades by imposed efficiency dividends.

Promising initiatives at home and abroad offer valuable principles for improving services for jobseekers. The best way to make services personal is to make them local: a national framework for helping the unemployed will be more effective if it links to organisations that understand economic conditions in local areas, including local employers, associations and providers. Local service delivery also allows strong partnerships and networks to be built on the ground, integrating services better than market incentives ever could. Effective local programs include the Brotherhood of St Laurence’s Given the Chance scheme; with over 300 refugees having found work since 2013, it outperforms Jobactive.

It’s also important to experiment with new ways of delivering services that can scale up over time. A German program for mature-age workers has used grant-based funding and lower caseloads to invest in clients in a more personalised manner. What began as a small, voluntary program expanded organically to become an almost nationwide endeavour, with the job take-up rate moving from 26 per cent to 35 per cent over four years. Many German job centres are shared municipal and federal government facilities, showing the benefit of collaboration across levels of government.

There is no reason this could not be done in Australia. Parramatta’s Socially Sustainable Framework identifies how the city council can help with social and economic challenges, including assisting disadvantaged jobseekers. In the right mix, local intelligence combined with the resources of the federal government could work wonders. The Department of Employment could embed itself in local offices around the country, collaborating with its local government counterparts to deliver tailored services using the best service-design principles. It could start with a focus on the most disadvantaged postcodes in Australia, where unemployment is most rife.

Assistance must also be enduring. Existing services focus on the unemployed or those who have very recently lost their jobs in specific manufacturing sectors. Government should develop a national policy framework that addresses unemployment, underemployment and insecure work as a whole. In Sweden, Job Security Councils are a “continuous presence” in the labour market, helping workers through career transitions and redundancy rather than waiting for them to appear in the unemployment queue. Swedish unions and industry work in concert to create a resilient workforce that can transition through tough times.

The most effective way to reform the system is to evolve it over time. The National Disability Insurance Scheme provides a cautionary tale of the problems created when a big rollout is rushed. Pilot programs should be allowed to work quietly and calmly in target communities, helping specific groups, investing over a long period, and collecting good-quality data to compare with Jobactive. Direct involvement would make the Department of Employment a smarter purchaser of services, and improve its policy-development capacity. The department already uses pilot programs to test new services: its ParentsNext trials help parents currently out of the workforce to find jobs and education.

This evolutionary approach should lead to a comprehensive national service framework that ties together new pilots and other initiatives into a proper strategy for assisting jobseekers. One viable medium-term alternative could be greater public provision of services to the most disadvantaged jobseekers, leaving market-based providers to assist the less disadvantaged. With more trials, we’ll have more data and better options for reform.

Employment services play a pivotal role in ensuring that all Australians have fair and equitable access to economic opportunity. For too long we’ve focused services on managing the unemployment queue rather than the individuals in it. We’ll limit our own future prosperity and exacerbate social divisions if we don’t fix a service that is obviously not working. ●

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At first sight, these figures provide strong evidence that Australia’s economy is weakening, despite the welcome 3.1 per cent growth in the trend level of output (gross domestic product) over the year to June. But bear in mind that statistics are not the facts we sometimes take them for. They are either informed estimates, or survey data – and both are fallible. We’ll come back to this point later.

The figures certainly add to the signals troubling policy-makers. Growth in business credit has slowed sharply; indeed, business credit has grown just 0.6 per cent over the past five months, implying that business confidence is low. Retail sales volumes are up by just 0.2 per cent over the past six months, implying that consumer confidence is low.

Housing approvals are falling, admittedly from record levels. And while business investment (other than mining) is growing, and government investment is finally climbing off the floor, their combined impact is far outweighed by the massive decline in mining investment.

Moreover, despite the Reserve Bank’s efforts to drive the dollar down, it is higher now than it was a year ago, cutting off the gains we anticipated for exporters and import-competing industries, from education and tourism to manufacturing and agriculture.

If you want to be despondent, you could add the fact that the two big uncertainties over the Australian economy – the risk of a hard landing from China’s housing bubble, and the not-unrelated risk of a crash in our own hyperinflated property market – have now been joined by a third big uncertainty: what will be the global economic impact of President Trump? Despite ridiculous claims from both sides, it will be another year, maybe much more, before we know the answer to that.

So it’s not surprising that International Monetary Fund staff this week cautioned the federal government against cutting the budget deficit too fast, and urged it to focus instead on building new infrastructure. Or that the Reserve Bank has felt desperate enough to cut interest rates twice since May, despite the evidence suggesting that the cuts are doing more to boost housing prices than growth and jobs.

For the last four years, since the mining investment boom peaked unexpectedly early, around the middle of 2012, the key risk facing the nation has been that mining investment will deflate even faster in a bust than it builds up in a boom. In the past, every time mining investment has gone bust, the Australian economy has gone bust with it. The job of policy-makers has been to try to stimulate above-average growth in the non-mining economy, so that the mining bust doesn’t drag us into recession.

By and large, the progress score is: so far, so good. The economy has kept growing, partly because the Reserve Bank slashed interest rates to unprecedented lows to stimulate a real estate boom. Australian households have played their part, adding an extra $300 billion over the past three years to what is now one of the world’s heaviest debt burdens. And of course, despite its rhetoric, the federal government has left the budget deficit as it was, spending $1.09 for every $1 of revenue it earned in 2015–16, and keeping the deficit at $40 billion.

Jobs had also kept growing – until now. That’s the worry in the figures the Bureau of Statistics released yesterday. At face value, they imply that the jobs market has gone from very strong growth in 2015 to treading water at best, or going backwards at worst, in 2016.

Taken literally, on the Bureau’s trend measure – which it urges us to use instead of the yo-yo seasonally adjusted measures preferred by bank analysts and the media – full-time jobs have fallen by 50,000 over the past twelve months, after growing by 165,000 in the previous twelve. Yet unemployment has kept falling, by 45,000 in the same year, shrinking the trend unemployment rate to 5.6 per cent in October.

Where have the workers gone? Out of the labour market. In the year to October 2016, the adult (fifteen and over) population of Australia grew by 293,000, but the number in the labour market grew by just 63,000. The rest joined the swelling ranks of those counted as “not in the labour force”: retirees, students, full-time mothers, and the ever-growing numbers of those whose lives have been too ruined by drugs, alcohol, injury, disability, personal struggles or mental illness to be able to find a job.

The collapse of full-time jobs began in January. The Bureau estimates that 70,000 full-time jobs have gone this year, mostly in New South Wales, Queensland and Western Australia. Victoria has been the standout defying the trend, but even there, on the new figures, full-time jobs peaked in August, and are now falling. They peaked in 2015 in New South Wales and Queensland, in 2014 in Western Australia and the Northern Territory – and in 2008 in South Australia and Tasmania. That picture is hard to ignore.

Yet be wary. The jobs figures come from a sample survey – a huge one, of 26,000 households, involving one in every 300 Australians – but even a huge survey can end up with an unrepresentative sample. And when our focus is not so much on the number of jobs as the change in them from month to month, the risk of the numbers painting the wrong picture is significant.

Just compare the past two years. Should we really believe that in 2015 job growth was so strong that it exceeded the growth in the adult population – whereas this year it has suddenly shrunk to a fraction of its previous level?

Should we really believe that Australia added a net 165,000 full-time jobs in the year to October 2015, then lost a net 50,000 in the year to October 2016? Does anyone believe that New South Wales added 133,500 full-time jobs in the first year, then lost 51,000 of them in the second?

Should we really believe that last year virtually all the growth in the adult population went into the labour force, whereas this year the vast bulk of it was outside the workforce?

The Bureau urges caution. It points out that, as a group, the new households surveyed in Queensland in the past two months have significantly lower employment rates – and particularly, full-time job rates – than the group of households that formed part of the previous numbers. It’s possible that the earlier numbers were too high, or the new ones are too low, or both.

Even at the national level, the households that will drop out of the survey next month had employment rates noticeably below the average of other months; there could well be a bounceback in the November figures, simply as a result of their leaving the survey.

It might be better to look at the two years together. In that time, the number of adult Australians has risen by 570,000, the number of full-time jobs by 115,000, the number of part-time jobs by 283,000, total employment by 398,000, and the numbers outside the workforce by 230,000. Unemployment is still down by 60,000, which is hard to explain. But taken together, the numbers for the two years tell a more plausible story than those for either year do by themselves.

The economy certainly appears to be slowing, and 2017 could be a harder year than this one. The combination of record household debt, low wage growth and a flat jobs market is an ominous one for consumer spending, which provides the bulk of economic activity. And, as the IMF team noted, the risks are weighted to the downside.

But whether those risks eventuate remains to be seen. Don’t take these jobs figures too literally. Don’t ignore our chances of muddling through yet again. •

The post The latest job figures: ominous or just odd? appeared first on Inside Story.

Porter developed his theme on Sky News. “In every single category of the very large spend in social services,” he said earlier this month, “the growth is, in any rational observation, unsustainable if it were to go on the way it’s gone on over the last ten years. In all areas, things like the disability support pension and a range of other payments – and there are many of them in the portfolio – they are growing at a rate greater than the ability of the tax base to sustain them.”

If these remarks sound familiar, it’s because they bear a strong resemblance to statements by Porter’s predecessor, Scott Morrison, who argued that “the social services budget could swamp the federal budget” and that “eight out of ten taxpayers work every day to pay our $150 billion welfare bill.” And last year Morrison’s predecessor as social services minister, Kevin Andrews, described welfare spending as “unsustainable” and “relentless.”

The disparity between spending and taxing that worries the Daily Telegraph is essentially meaningless, of course, because it compares spending in eleven years’ time with tax levels today. And, just like the argument that eight out of ten taxpayers work every day to fund the welfare system, the calculation appears to include only personal income taxes, not overall tax revenue (from where social security spending is financed).

Setting the context

To understand changes in welfare spending we need to factor in changes in the context in which welfare dollars are spent – population growth and the impact of an ageing population, for example, and changes in government policies and welfare categories.

One approach draws on the fact that in any year, by definition, the total amount of money spent on a social security program is equal to the number of people receiving the payment multiplied by the average amount of money they are paid. Using this simple arithmetic, it’s possible to look at the factors that determine the number of people receiving benefits and identify what influences the amounts they are paid. (This method has been used in Australia by Peter Saunders of the Social Policy Research Centre at the University of New South Wales, and more recently by researchers in Ireland.)

The number of people receiving payments reflects interactions between Australia’s growing population, changes in the age composition of the population, trends in the job market and in family structure, and the impact of government decisions about who is eligible for payments, as well as changes in other parts of the welfare system. The way individuals respond to changing incentives within the welfare system also affects patterns of payment.

The average level of payments will mainly reflect government decisions about benefit levels and income tests. (It’s important to remember that Australia’s income testing of benefits means that the average level of payments will nearly always be lower than the basic rate of entitlements.)

One of the more important decisions governments make is which indexing approach they will use to ensure that payments reflect changes in community living standards. A number of major payments – the age pension, the disability support pension, or DSP, and the carer payment – are currently indexed to wages, while most other income-support payments and family payments are indexed to prices.

As long as real wages are rising, payments indexed to earnings will rise in real terms – as will the overall cost of those payments, but even if payments are indexed to prices, the overall cost will rise, assuming the population isn’t falling. In these circumstances, the only ways to avoid the payment’s overall cost rising faster than inflation is either to cut the proportion of the population receiving the payment or to cut average benefits in real terms.

We also need to look at the system as a whole, and not just its parts. This is particularly important because Australia has a categorical system of income-support payments. To be eligible for a payment an individual needs to fall into a defined group – by being over the age of sixty-five, for example, or having a disability, or caring for someone with disability, or being unemployed or sick, or studying, or caring for children. We even have a payment – the special benefit – for low-income people who don’t satisfy the criteria for any of the other categories.

For any one person, these categories are mutually exclusive. An individual can simultaneously be over the age of sixty-five and have a disability that prevents him or her from taking paid work, for example, and a lone parent can also be looking for full-time work or caring for someone with disability. But these individuals can only receive one of the categorical income-support payments, even if they are potentially eligible for more than one.

This may make it possible to “game” the system by claiming the payment with the most favourable conditions. But it also means that when government policy changes and a payment is either abolished or phased out, or eligibility conditions are tightened, individuals may be entitled to claim a different payment. This also applies to groups of people at different times: following a change of policy, a class of people who might previously have been able to claim one type of payment might be eligible for another payment.

In fact, some policy reforms are designed to move groups very quickly from one payment to another. If we only analyse one payment at a time we overlook this potential substitution and gain a very limited view of what is actually going on in the welfare system.

The final context for analysing welfare spending is historical. In my earlier assessment I used Department of Social Services, or DSS, statistical reports going back to 1991 and data collected by its predecessor departments since the 1960s. Because the population has not only grown significantly but also changed its age composition, the following charts divide the population into people aged between sixteen and sixty-four (the working-age population) and people aged sixty-five or more.

Picking the trends

Chart 1 shows trends in the percentage of people aged sixty-five and over who received income support of different forms between 1995 and 2014. As it makes clear, the proportion of older people receiving an age pension either from the DSS or the Department of Veterans’ Affairs, or DVA, has increased from around 64 per cent of the population in 1995 to close to 70 per cent in 2014. The proportion receiving a DVA service pension in combination with an income-support supplement, however, has fallen from around 19 per cent to 6 per cent, while the proportion receiving other payments – mainly the DSP, the carer payment or the special benefit – has increased from 1.7 to 2.6 per cent.

The total number of people receiving one of these payments has gone up by close to 700,000, but this is simply because the number of people over sixty-five has increased by 1.36 million. The proportion receiving one or other of these payments has fallen from around 85 to 78 per cent.

Chart 1: Trends in the percentage of the older population receiving income-support payments, Australia, 1995–2014

Source: Calculated from Department of Social Services, Income Support Customers, A Statistical Overview, various years; Department of Social Services, DSS Payment Demographic Data, June 2014; ABS, Australian Demographic Statistics, 2014.

The decline in the share of the older population receiving a service pension plus an income-support supplement largely reflects the movement of the people who were in service during the second world war into this payment between the 1970s and 1980s and then out again, through death, and the subsequent lack of any large-scale war experience.

Age pensions (either from DSS or DVA) are alternatives to service pensions. But the fact that the increase in the share receiving age pensions was only about half the size of the decline in the share receiving service pensions suggests that potential new entrants are better off than previous groups of people turning sixty-five. And, as compulsory superannuation increases retirement resources in future years, the share of older people receiving an income-tested payment is likely to decline further – although the full effect will not be seen until after 2030 when retirees will have had the opportunity to contribute over their full working lives.

Trends among people of working age differ significantly from those among people over the age of sixty-five. Chart 2 shows the proportion of people aged sixteen to sixty-four receiving income-support payments between 1995 and 2014. After a small jump in 1996 there was a long, steady decline, with a more modest rise and fall since 2008.

Chart 2: Trends in the percentage of the working-age population receiving income-support payments, Australia, 1995–2014

Note: Working age is defined as the population aged sixteen to sixty-four years. Source: Calculated from Department of Social Services, Income Support Customers, A Statistical Overview, various years; Department of Social Services, DSS Payment Demographic Data, June 2014; ABS, Australian Demographic Statistics, 2014.

The rate in the chart has been calculated to show the impact of one of the most important policy changes in social security over the past twenty years. In 1995, the Keating government began lifting the eligibility age for women to receive the age pension from sixty to sixty-five years. This was phased in between 1995 and 2013, with the number of women aged sixty to sixty-four years receiving an age pension falling from 211,000 in 1995 to zero in 2014.

In order to be consistent over time, female age pensioners between sixty and sixty-four years are included in the working-age group over the whole time period. This figure also excludes a smaller – but growing – group of people who are receiving working-age payments but who are actually over sixty-five years of age.

Chart 2 shows that at the peak in 1996, nearly 25 per cent of the working-age population was receiving basic social security payments. By 2014 the figure was 16.8 per cent, a decline of around eight percentage points, or close to a third.

While numbers on payments are available for 2015, Australian Bureau of Statistics, or ABS, data on the age composition of the population are not. But we do know that the number of working-age people on payments rose by around 1.9 per cent in the year to June 2015 and the total Australian population rose by 1.4 per cent in the year to March 2015. Given that the population under sixteen years of age has been rising at a slower rate than any other group, it seems unlikely that the rate of receipt of payments has changed to any large extent, although it is possible that it has gone up slightly.

What explains these fluctuations? The number of working-age people receiving welfare payments at any one time is strongly related to the state of the labour market. Not surprisingly, it increases significantly in periods of recession. During the last major recession, in the early 1990s, unemployment peaked at 11 per cent, but by February 2008 it had fallen to 4 per cent, the lowest level since 1974. So part of the explanation for the long-term decline is Australia’s very strong employment performance, particularly before the global financial crisis.

But other factors are at work as well, including the dynamics of different categories of payments. Changes in the number of lone parents receiving benefits partly reflect shifts in family formation, for example. People who are unemployed for lengthy periods and experience a disability may drop out of the labour market and end up on the DSP. Unemployment can lead to family breakdown and growing lone parenthood.

Policy changes are also a major cause of trends in the number of welfare recipients. In periods when benefits are more generous or easier to access, the number of recipients naturally tends to grow, while tighter or less generous conditions have the opposite impact.

Reflecting these and other factors, as was shown in Chart 2, the proportion of people receiving welfare payments peaked at nearly one in four of the working-age population in 1996, before falling to roughly one in six in 2008, just before the global financial crisis. After the GFC, the proportion of working-age people receiving benefits rose to 17.5 per cent in 2010, then started to fall again, reaching 16.7 per cent in 2014 – not quite back to the 2008 level, but the second-lowest level in the past two decades.

Chart 3 breaks down trends since 1995, showing what has happened to the share of the working-age population receiving the DSP, the share receiving unemployment-related payments, the share receiving the carer payment, and the percentage receiving any other form of working-age income support, including parents, the sick, wives, widows, partners and recipients of student assistance.

Chart 3: Trends in the percentage of the working-age population receiving selected income-support payments, Australia, 1995–2014

Note: Working age is defined as the population aged sixteen to sixty-four years. These figures are adjusted to include women aged sixty to sixty-four years on age pensions in the working-age payment population and to include people sixty-five years and over and not on age pensions in the retirement age payment population. Source: Calculated from Department of Social Services, Income Support Customers, A Statistical Overview, various years; Department of Social Services, DSS Payment Demographic Data, June 2014; ABS, Australian Demographic Statistics, 2014.

What is apparent is a fairly steady rise in the share of people on the DSP, from 3.9 per cent of the working-age population in 1995 to a peak of 5.4 per cent in 2011, falling slightly to about 5.2 per cent in 2014. The number of people of working age on this payment fell further from 790,000 in 2014 to 778,000 in 2015. Interestingly, the number of people aged sixty-five and over who receive the DSP rose from around 4000 in 1995 to nearly 40,000 in 2014, presumably because they have not lived in Australia long enough to receive an age pension, but acquired a disability after they settled here.

The long decline in the share of the working-age population receiving unemployment payments before the GFC is also apparent, with an increase in 2008–09 and a sharper increase between 2012 and 2013. The proportion of people on the carer payment rose from a negligible 0.2 per cent of the working-age population in 1995 to 1.4 per cent in 2014.

What is most striking, however, is the trend in the number receiving “other” payments, which peaked at 13.6 per cent of the population in 1996 but had fallen to 5.1 per cent by 2014. In numerical terms, the number of people receiving these benefits has fallen from 1.6 million in 1996 to 781,000 in 2014 (and further to 758,000 in 2015). The improvement in labour-market conditions between 1996 and 2008 is likely to have contributed to the decline in the share of working-age people on these other payments, but policy changes appear to be the most important factor.

What these figures show is that if we only look at the programs in which numbers have been going up – the DSP, the carer payment and, more recently, unemployment payments – then we will have a very partial view of overall trends and miss the contribution of policy changes in other parts of the system.

Looking at the system as a whole

Why has the percentage of the working-age population receiving DSP and the carer payment been rising since 1995, and the share receiving unemployment payments rising since 2008, while the share receiving other payments has declined significantly? The state of the labour market is part of the answer, and so are two other factors that have had a major impact among people of working age: the ageing of the baby boom generation and the major social security policy reforms introduced by successive Australian governments over the past two decades.

Chart 4 shows the age profile of the main social security payments for people of working age in 2014 (the most recent year for which ABS data on the age structure of the population are available), including the Newstart unemployment benefit as well as payments already mentioned. The figure excludes student payments, which primarily go to people under twenty-five, and age pensions, which go to people over sixty-five. (Around 9 per cent of people under twenty-five receive student assistance and 72 per cent of people over sixty-five receive an age pension or another DSS payment.)

Chart 4: Percentage of age group receiving income-support payments by payment type, Australia, 2014

Source: Calculated from Department of Social Services, DSS Payment Demographic Data, June 2014; ABS, Australian Demographic Statistics, 2014.

The proportion of people receiving social security benefits clearly increases with age – doubling from 10.5 per cent of those aged under twenty-five to 21 per cent of those aged fifty-five to sixty-four, although for those between these two age groups rates of receipt only range between 14 and 15 per cent.

Not all payments are higher among older age groups: employment-related payments are received by around 5 per cent of each age group, and the parenting payments peak at around 5 per cent of those aged twenty-five to thirty-four years and then decline. But in the other major categories, payment rates rise significantly with age – particularly for people receiving DSP, who make up around 2 per cent of those under thirty-five, 4 per cent of those aged thirty-five to forty-four, 7 per cent of those aged forty-five to fifty-four and close to 12 per cent of those aged fifty-five to sixty-four.The proportion of people receiving the carer payment also rises from less than 1 per cent of those aged twenty-five to thirty-four to 2.6 per cent of those aged fifty-five to sixty-four. People receiving wives, widows or partner payments are predominantly aged between fifty-five and sixty-four years.

Why? The obvious answer is that the likelihood of acquiring a disability increases with age as a result of lifestyle-related diseases and natural wear and tear, particularly for those with manual jobs. The US Social Security Administration estimates that more than 25 per cent of current twenty-year-olds will acquire a disability before the age of sixty-five. It is also obvious that the number of people who need to care for relatives with disability will rise as the structure of the population shifts.

For these reasons, the number of people receiving social security is influenced not only by changes in the population but also by changes in its demographic profile, particularly by the share of the population in the age groups over fifty years of age.

Chart 5 shows changes in the size of the population in different age groups in Australia between 1995 and 2014, separating out the changes since 2005 from those over the longer period.

Chart 5: Percentage changes in the size of the population by age group, Australia, 1995–2014

Source: Calculated from ABS, Australian Demographic Statistics, 2014.

Between 1995 and 2014 the total Australian population increased by close to 31 per cent and the population over sixteen years of age increased by just over 35 per cent. It is important to understand the implications of this: if all income-support payments were simply indexed to prices and if the share of the population over sixteen and the percentage of the population receiving benefits remained constant, then we would expect real social security spending still to have increased by 35 per cent since 1995.

Different age groups have also grown at very different rates. The number of children in the population has increased by only 14 per cent since 1995, or less than half the rate of the increase in the total Australian population, while the proportion of the population between sixteen and forty-nine has grown by around 20 per cent. Meanwhile, the proportion of the population aged sixty-five and over increased at more than twice the rate of the total population. Even more strikingly, the population aged between fifty and sixty-four – those working-age groups whose receipt of social security is highest – increased by nearly 72 per cent.

But trends in the second half of this period differ in subtle but significant ways. The total Australian population increased at about the same rate as in the whole period, but the share of children rose at a faster rate. The rate of increase in the population aged fifty to sixty-four years fell by close to 70 per cent, but the number of people aged sixty-five years and over grew marginally faster in the second period than it did over the whole period.

These trends reflect divergent demographic movements, primarily the ageing of the baby boom generation and to a lesser extent the increase in total fertility rates after 2000. Baby boomers were born between 1946 and 1964 and started to turn fifty in 1996 and sixty-five in 2011. The ageing of this generation initially increased the percentage of the population in the age groups likely to receive DSP and the carer payment, and more recently has boosted numbers in the age range potentially entitled to the age pension. Up until 1996, as demographer Natalie Jackson has shown, changes in the age structure of the Australian population acted to slow the growth of the DSP. But when people born in 1946 started to turn fifty in 1996, that slowdown was reversed.

The effect of the ageing of the baby boom generation is illustrated in Chart 6, which shows the change in the number of people by years of age between 1996 and 2014 (after taking account of deaths and migration). The largest population increase is among fifty- to sixty-seven-year-olds, with each year group being around 100,000 larger than the comparable group in 1996. Cumulatively, there were 1.9 million more people aged fifty to sixty-four – the age at which rates of receipt of the DSP start to rise significantly – in 2014 than in 1996.

Chart 6: Change in number of people sixteen and over by age, Australia, 1996–2014

Source: Calculated from ABS,Australian Demographic Statistics, 2014.

Between 1996 and 2012 the proportion of people of working age receiving the DSP rose from 4.3 per cent to 5.6 per cent. If the age structure of the population had held constant at 1996 shares, then the figure would have been 5.0 per cent – in other words, roughly half of the total increase can be said to be unrelated to changes in the labour market, the incidence of disability or individual behaviour, but simply reflects changes in the age structure of the population.

The chart also shows that, beginning in 2015, the increase in the size of each year cohort will decline significantly, and then increase again, before declining again. For example, while there were 93,000 more fifty-year-olds in 2014 than in 1996, there were only 42,000 more forty-nine-year olds (and 15,000 more each of thirty-five- and thirty-six-year-olds). These shifting patterns suggest shifts in the number of potential inflows into the DSP and other payments predominantly claimed by people over fifty.

More importantly, a series of policy changes from the late 1980s and mid 1990s also had a major impact on the number of people receiving the DSP and other payments.

One of the most important of these was the increase in the age pension qualifying age for women from sixty to sixty-five, as already mentioned. Before 1995, women receiving the DSP were required to shift to the age pension once they turned sixty, and women who became disabled after turning sixty weren’t able to claim the DSP unless they had lived in Australia for less than the ten years needed to qualify for an age pension.

As the cut-off age started to increase, women with disabilities in this age group increasingly claimed the DSP. As Chart 7 shows, the proportion rose from close to zero to 13.3 per cent by 2013. (Age breakdowns by gender are not available for subsequent years.) But as the number of women receiving the DSP went up, the number receiving the age pension went down – and, as Chart 8 shows, it went down by much more.

Chart 7: Change in percentage of women aged sixty to sixty-four years receiving the DSP, Australia, 1995–2013

Source: Calculated from Department of Social Services, Income Support Customers, A Statistical Overview, various years; Australian Bureau of Statistics, Australian Demographic Statistics, June 2013.

In 1995, only about 650 women aged sixty to sixty-four received the DSP and 212,000 received the age pension. By 2013, 86,000 women in that age group received the DSP, and only 27,000 were age pensioners. (And since 2014 none have received the age pension.) The number of female carers has risen from 132 in 1995 to more than 24,000 in 2013. Where once 67 per cent of women of that age received a pension or other payment, now the figure is 31 per cent. Overall, close to a quarter of the growth in the number of DSP recipients over the past twenty years can be accounted for by the growth in the number of women aged sixty to sixty-four receiving the DSP rather than the age pension. And close to 10 per cent in the growth in numbers of recipients on the carer payment is accounted for by this age group.

Chart 8: Percentage of women aged sixty to sixty-four years receiving the DSP, age pension or other income support, Australia, 1995–2013

Source: Calculated from Department of Social Services, Income Support Customers, A Statistical Overview, various years; ABS, Australian Demographic Statistics, June 2013.

In future, these two major pressures on the DSP numbers – the ageing of the baby boomers and the increase in women’s pension age – won’t operate to the same extent. Because the last of the baby boom generation turned fifty in 2013, the pressure on the DSP numbers should have started to lessen. The younger part of the baby boom generation won’t turn sixty-five until 2028, but the rate of increase will slow because that age group is not growing as rapidly. In the United States, for similar reasons, both the Social Security Administration’s actuaries and the Congressional Budget Office project that spending on the US disability insurance program will fall as a share of GDP in the coming decade as baby boomers convert from disability to retirement benefits and are replaced in the peak disability-receiving ages by smaller cohorts. If anything, the effect is likely to be even stronger in Australia because the increase in the pension age for women was also fully phased in by 2014 and this pressure will also decline.

It is worth remembering, however, that the Rudd government announced an increase in the pension age for both men and women from sixty-five to sixty-seven years, to phase in between 2017 and 2023. Some of the people affected by this change will probably be entitled to the DSP, leading to an increase in numbers on the DSP after 2017, but past experience suggests that the overall number of people in this age group receiving payments will reduce.

In addition, the 2010–11 budget included revised access procedures for some DSP claimants, to commence on 1 January 2012, and new participation requirements from 1 July 2012, affecting current and new DSP recipients under the age of thirty-five who are assessed as having a work capacity of eight hours or more a week. As shown in Chart 9, these changes appear to be associated with a very large slowdown in the rate of increase in the number of people being paid the DSP, albeit after a relatively large spike in numbers following the GFC (after a lag).

Chart 9: Annual average percentage change in the number of people receiving the disability support pension, Australia, 1995–2015

Perhaps as a result, the most recent figures for numbers on the DSP show a fall from around 827,000 in 2012 to 814,000 in 2015; excluding people over sixty-five who receive the DSP this is a fall to around 5.2 per cent of the working-age population, about the level it has been since 2002.

“Dependency” payments

What explains the reduction in the number of people receiving payments other than DSP, the carer payment or Newstart?

Starting in the 1980s and continuing for more than twenty years, the federal government began phasing out a number of other payments or limiting access to new claimants. Access to Widow B pension, for example, was limited in 1987, and then closed to new entrants in 1997. In 1994, the government introduced the partner allowance to provide support to the partners of beneficiaries who had previously received a “married rate” of payment; then, in 1995, it restricted this to older women without recent workforce experience while introducing Parenting Payment Partnered for partners with dependent children. As well as phasing out these payments, the government changed the income test for unemployment payments in 1995 to require both individuals in a couple to claim the benefit in their own right, and part of their individual earnings did not affect their partner’s benefit entitlements.

The wife pension was closed to new entrants in 1995; the partner allowance and the mature age allowance were closed to new claimants in 2003; and by 2008 there were no longer any recipients of the mature age allowance. Since 2005, new grants of the widow allowance have been limited to women born on or before 1 July 1955.

Most of these payments had effectively been based on the assumption that women were “dependents” of men, or in the case of widows that they had been dependent and should not be expected to look for work. Even the lower age for women to receive the pension had been partly based on the assumption that women would want to leave the workforce at roughly the same time as their assumed older husbands. Economist Bob Gregory has also argued that these changes affected the likelihood of partnered men claiming payments, because their behaviour could be influenced by their partner’s failure to qualify for a payment.

These changes had a profound impact not only on the total number of people receiving welfare payments but also on which payments they received. In the mid 1990s, the “closed payments” – mainly for women – were received by around 4 per cent of the working-age population; now, only 1 per cent of the population receive their successor payments.

About 1.3 per cent of the working-age population are receiving the carer payment. As with the age pension/DSP trade-off for older women, the rise in the number of people on the carer payment is more than offset by the decline in the number of people on these “dependency” payments.

A further change to parenting payments by the Howard government in 2006 required new lone parents with a youngest child aged eight or over to claim Newstart rather than parenting payment single and for partnered parents with a youngest child aged sox years and over to claim Newstart rather than parenting payment partnered. Parents already receiving the benefits, however, were “grandfathered” and continued to receive these higher levels of benefit.

What about the unemployed?

Two main factors have driven the growth in Newstart numbers. The number of people receiving unemployment benefits tracks broader labour-market trends fairly closely, and so the increase in the unemployment rate from around 5 per cent to closer to 6 per cent since June 2012 could be expected to result in roughly 100,000 additional people on benefits.

Changes to the DSP under the previous government, which appear to have slowed its growth, may have increased numbers on Newstart, while policies designed to shift people from parenting payments to the lower Newstart payments since 2006 (and particularly since the beginning of 2013) have also added to the total.

The Gillard government forecast that around 10,000 people would lose all entitlement to benefits in 2013 as a result of the decision to move the “saved” lone parents from parenting payment single to Newstart, and that around 75,000 would transfer onto Newstart. (This effect is the same as the substitution between the age pension and the DSP, carer payment and other closed benefits, as described above.)

The monthly statistics on labour force payments show that between December 2012 and February 2013 the number of people on unemployment payments jumped from around 700,000 to 796,000, an increase around four times as great as the corresponding periods for the previous two years. Moreover, around 83 per cent of the increase was made up of women, reinforcing the impression that this very large jump is mainly explained by parents transferring from parenting payments.

The table below shows trends in the number of lone parents receiving either the parenting payment single or Newstart between 2006 and 2014. From a negligible number of lone parents receiving Newstart in 2006, the number has grown to around 120,000 in 2014. Data on the number of lone parents receiving other payments such as the carer payment or the DSP are not publicly available, and it is possible that a sizeable number of people who would otherwise have received the parenting payment single would now be receiving one or other of these payments, if they were eligible. Nevertheless, Table 1 shows that while Newstart numbers have grown significantly, the total number of lone parents receiving one or other of these payments has fallen.

Number of lone parents receiving either parenting payment single or Newstart, Australia, 2006–2014

Source: Data provided by ACOSS from answers to Parliamentary Questions on Notice

Chart 3 showed that the share of the working-age population receiving Newstart has risen since 2008, with about 300,000 more people on Newstart in 2014 than just before the GFC. In 2014, as Table 1 shows, there were about 100,000 more lone parents on Newstart and 100,000 fewer on parenting payment single than in 2008, and as suggested earlier a rise in the general unemployment rate by 2 percentage points could have been expected to add around 200,000 more people to Newstart.

While the situation is complicated by other changes in the population – including a fall in the number of lone parent families since around 2003 – these figures suggest that a very significant component of the rise in numbers on Newstart can be explained either by labour-market change or deliberate policy change.

What has happened to spending?

Not surprisingly, governments interested in balancing the federal budget are most concerned with program spending, even if the number of recipients is one of the main drivers of aggregate spending. Governments also tend to focus on nominal spending over the forward estimate period.

Just as it is preferable analytically to focus on recipients of benefits as a percentage of the population, it is also preferable to treat spending as a percentage of GDP as the best measure of the affordability of the system. This is because, as we’ve seen, real spending will grow simply as a result of population growth, even if all other parameters are held constant.

The most consistent and comprehensive time series on social spending as a percentage of GDP can be found in the OECD Social Expenditure database, which provides overall levels of public social spending up to 2014, though details of spending disaggregated by program are available only to 2012. (The social spending figures for Australia aggregate federal and state government spending, but virtually all spending on cash benefits is undertaken at the federal level.)

Chart 10 shows trends in spending on age and related pensions (mainly DVA payments) from 1995 to 2012. With the exception of the year 2000, spending on age and related pensions has remained between 3 and 3.4 per cent of GDP. (The spike in spending in 2000 is the result of the compensation package for the introduction of the GST in that year.) These pensions are indexed to wages, so the stability of spending as a per cent of GDP is likely to reflect the declining coverage of the service pension, as discussed earlier.

Chart 10: Spending on age and related pensions, Australia, 1995–2012

Source: OECD Social Expenditure database.

Chart 11: Spending on working-age cash benefits, Australia, 1995 to 2012

Source: OECD Social Expenditure database.

Chart 11 shows trends in spending on the other major cash transfers from 1995 to 2012. Overall, spending has fallen from 5.5 to 4.9 per cent of GDP over this period. Spending on working-age payments spiked in 2008, at the time of the stimulus payments made during the GFC. Excluding “other incapacity” (mainly state government workers’ compensation payments) overall spending fell from 4.7 to 4.3 per cent of GDP.

Spending on the unemployed – which includes spending on parenting payments in the OECD’s definition – fell from 1.2 to 0.6 per cent of GDP. The only component to rise as a percentage of GDP was disability payments (which include the carer payment), from 1.1 to 1.5 per cent of GDP.

Spending on family cash benefits rose substantially from 2.1 to 2.6 per cent of GDP between 1995 and 2003, but has since fallen back to 1.9 per cent of GDP (although with a spike at the time of the GFC).

Overall, the spending trends in the OECD data are consistent with the picture derived from considering trends in the number of recipients. Spending has gone up in some categories, notably the DSP and carer payment, but spending in other social security areas has fallen to more than offset these rises.

Where to from here?

The data show a prolonged fall in the number of welfare recipients since the mid 1990s, reflecting a long period of economic growth, a strong labour market, and the positive impact of policy changes since the early 1990s. While trends have not been as positive since 2008, they have been mild by the standards of earlier economic downturns in Australia. Trends in spending as a per cent of GDP show broadly similar patterns, with no evidence of major increases after 2008.

This analysis also shows that past trends are not necessarily a reliable guide to the future. The two main pressures on DSP numbers – the ageing of the baby boomers and the increase in women’s pension age – are unlikely to continue to have such a significant impact, suggesting that numbers of recipients and levels of spending relative to GDP are unlikely to grow in the near future unless there is some form of economic shock.

While concerns about relentless growth are difficult to substantiate – particularly when the total number of welfare recipients is close to its lowest level in the past twenty years – we should not be complacent.

Our main concern should be to avoid any significant blow-out in unemployment. Previous increases in unemployment in the recessions of the 1980s and 1990s had very long-term consequences, particularly for jobless families with children. Nor should we be complacent because welfare numbers are at their second-lowest level in the past two decades. Successive governments have argued that the “best form of welfare is work” and it is clear that the economic wellbeing of individuals and families is much greater in paid work than outside it.

The problems that some people on welfare face in moving into work require a comprehensive analysis, however. Not all these problems are caused by the welfare system: other barriers to work include labour-market programs that are not equally effective for all, a lack of job opportunities in the regions where people live, poor public transport, inadequate and expensive child care, mismatched skills, and negative employer attitudes to people disadvantaged in the labour market. Changing incentives in the welfare system through reform of eligibility for specific payments is only part of an effective response to these challenges.

In addition, the growth in the size of the population aged sixty-five and over will put upward pressure on spending over coming decades. Preparing for the continued ageing of the population, however, does not necessarily imply that the solution is to seek to further cut spending on working-age payments. •

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No recession since 1974–75 has done less damage to the Australian economy in the short term. Yet, amazingly, the recession of 2008–09 has knocked the economy off its long-term track more damagingly than any other downturn for more than half a century.

And now Reserve Bank governor Glenn Stevens is pondering aloud whether this marks a permanent downward step in Australia’s potential growth rate. His thoughts are more than a little confusing, though, as the variety of media interpretations attests.

It might be best if we start by looking at what has actually happened.

First, the recession. You didn’t know that Australia, too, went into recession in 2008–09? No problem: “recession” doesn’t have a precise definition. The theory that two quarters of negative growth make a recession is a newspaper invention. In the United States, a committee of wise economists issues authoritative but inevitably subjective rulings on when the American economy enters and exits a recession. We have nothing comparable here.

But the noun “recession” comes from the verb “recede.” It means “going backwards,” which, to my mind, is exactly what happened to Australia in the wake of the global financial crisis. In just over a year, a net 200,000 people became unemployed. A net 240,000 others became underemployed: mostly because their full-time jobs suddenly became part-time.

The unemployment rate rose from 4.1 per cent in early 2008 to 5.8 per cent by mid 2009. The underemployment rate rose from 5.9 per cent to 7.8 per cent. Close to half a million extra people either had no work or not enough. If that’s not “going backwards,” what is?

On the national accounts’ bottom line – the trend measure of output, or gross domestic product, or GDP, per head– Australia went backwards for three consecutive quarters. The total fall was less than 1 per cent, whereas in Greece, so far, the slide has been 25 per cent. But our economic performance clearly receded, which is why it seems to me a recession.

But it is what followed that really matters.

As the graph shows, this downturn, although the shallowest since the 1974–75 recession that doomed Gough Whitlam, has been followed by the weakest recovery Australia has seen since quarterly national accounts began in 1959.

The latest national accounts, those for the March quarter, show that since the pre-GFC peak in June 2008, our output per head – a pretty rough measure of economic living standards, but the best we have – has risen just 5 per cent over a period of almost seven years.

That is less than half the average growth recorded in the same period during and after the previous three recessions. Back in the Fraser years we thought the recovery was hardly worth the name, yet at this stage of that revival, GDP per head was already 9 per cent above its pre-recession peak.

After the 1980s recession, GDP per head had recovered by this point to almost 12 per cent above its pre-recession peak. Even the 1990s recession, which was protracted by poor policy decisions, saw output per head up 10.75 per cent by this time.

Over the thirty-five years before the GFC, despite three recessions, Australia’s output per head grew on average by 1.9 per cent a year. Since the GFC, almost seven years now, it has averaged growth of just 0.7 per cent. That is a sharp change.

But hasn’t Australia grown faster than just about any other developed country over the past few years?

Nope, that’s a well-recycled claim, but it’s a myth.

It is true that Australia was one of just a handful of developed countries to record positive growth in 2009, yet the economy grew less (1.6 per cent) than the population (2 per cent). Our living standards still went backwards.

Because our population keeps growing far more rapidly than most, ministers and officials usually focus on the raw growth figures, not the per capita ones. Why? Because we look much better that way, and to the sales team, presentation matters more than performance.

The International Monetary Fund estimates that between 2007 and 2014, Australia’s per capita GDP grew 6 per cent, which puts us just tenth among the thirty-six countries the IMF groups as “advanced economies.” You’d rather be tenth than twentieth or thirtieth, but we’re not world leaders.

The East Asian tigers were way out in front: Taiwan’s per capita output grew 21 per cent in that time, and South Korea’s 20 per cent. Even Germany, in the heart of the eurozone, marginally outpaced us, its output per head growing 6.4 per cent.

Similarly, Australia’s unemployment rate of 6 per cent is around the middle of OECD countries: equal fourteenth out of thirty-four members. Among the larger Western economies, we are actually in the worst half for unemployment: it’s 5.5 per cent in the United States, 3.3 per cent in Japan, 4.7 per cent in Germany, 5.4 per cent in Britain, and 3.9 per cent in South Korea.

In the southern German states of Bavaria and Baden-Württemberg, which together have a population similar to Australia’s, unemployment is now less than 3 per cent. Don’t let anyone tell you that we have full employment when unemployment is 5 per cent.

Our employment-to-population ratio is a little better: 71.6 per cent of Australians aged fifteen to sixty-four have a job, the twelfth best of the thirty-four OECD countries. But that is partly because of our extraordinarily high rate of underemployment – what the OECD terms “involuntary part-time employment.”

The recent OECD Employment Outlook 2015 shows Australia in 2014 had the fourth highest underemployment rate in the OECD, 8.6 per cent, behind only the disaster cases of Italy, Spain and Ireland. It is stunning that 11.6 per cent of all women with a job, or one in nine, were forced to work part-time because they could not find full-time work.

We escaped the GFC more lightly than most Western countries. But almost seven years on, we have experienced our most prolonged period of weak growth for eighty years. In the past three years, despite the population growing by 1.1 million, or 1.6 per cent a year, our GDP growth has averaged just 2.4 per cent, way below the 3.5 per cent we might have expected with such rapid population growth in the pre-GFC era.

Is that why Reserve Bank governor Glenn Stevens warned last week that our “normal” growth rate might be lower now than it used to be?

Possibly. Frankly, I’m not sure what he meant. The speech appeared to me and others to make the case for all actors in the economy – politicians and others – to focus on the need to lift our rate of productivity growth. But in question time, he declared himself optimistic about future productivity gains.

The speech approached the issue via an apparent anomaly in the statistics. In the past year the labour market seems to have picked up, with employment up sharply and unemployment down slightly, even though GDP growth has been coughing along at little more than 2 per cent growth. How can this be?

The Guv posed four possible explanations:

• The jobs and unemployment figures might have overstated the real strength of the labour market.
• The GDP figures might have understated the real strength of the economy.
• Our unprecedented low wage rises may have encouraged business to hire more workers despite the weak economy.
• Something has happened to lower our potential growth rate.

Most of his speech focused on the last option, but we should not rule out the first two as likely contributors.

First, anyone addicted to studying the labour force figures will know that they tend to move in surges: one year will record what seems like unrealistically high jobs growth, the next year it will seem unrealistically low. From 2011 to 2014, the figures showed three years of very weak jobs growth; maybe the data understated the reality, and some of the jobs created in those years have shown up in the figures just now.

Second, national accounts junkies know that the Australian Bureau of Statistics revises the growth figures up more often than it revises them down. At one point, it almost revised away the 1990–91 recession. It wouldn’t surprise me if it concluded that our growth rate over the past year was a bit higher than the 2.25 per cent shown in its March accounts.

Stevens’s third possible explanation – that employers are taking on more workers because of low wage rises – seems unlikely. Three-quarters of Australia’s GDP growth is now coming from exports, mostly mining exports, which employ few workers. The bulk of us work in the domestic economy, and domestic demand grew by just 0.6 per cent in the past year. While consumer demand is doing better, there's not much incentive to hire.

But our GDP growth per head since 2008 has been less than half of its traditional pace. Does that mean our sustainable growth rate has changed?

Possibly. Economic growth is produced by increasing productivity and/or increasing the total working hours of the population. Since the GFC began almost seven years ago, total working hours have grown just 0.7 per cent a year, compared to an average of 1.75 per cent over the previous thirty years. That almost exactly matches the slowdown in growth in GDP per head.

The reverse has happened with labour productivity. Since the GFC, the value of output produced by each working hour has grown by 1.7 per cent a year, an increase on its long-term average of 1.5 per cent.

The contrast is sharpest if you exclude sectors where our output is mostly not sold on the market – healthcare, education, government, etc. Since the GFC, hours worked in sectors competing in the market have grown just 0.3 per cent a year, whereas output per working hour has swollen 2 per cent a year. Work intensification? You bet, and that’s why Glenn Stevens said labour productivity is not a long-term problem. He’s right, but it makes it hard for this little head to understand what his real point was.

Population growth is not the issue. Since the GFC, it has averaged a bustling 1.7 per cent a year, causing problems for the four cities where most of it is happening, but not for the economy. It has slowed recently, but is still above its long-term average of 1.3 per cent.

An ageing population is gradually slowing the potential growth of the labour force, but there is still lots of spare capacity, an immigration tap that can be turned up if needed, and increasing willingness by older people all over the Western world to keep on working. (In the past decade, despite the shortage of jobs, the number of over-sixty-fives in the workforce has more than doubled from 178,000 to 419,000.)

It was an unusual speech for Stevens, who has spent most of his long period as governor trying to avoid saying anything that treasurers might see as unwanted advice on how to do their jobs better. Possibly he is becoming bolder before his retirement next year, or possibly, like the rest of us, he is just fed up with the degradation of public debate under the Abbott government, and its aversion to doing anything politically hard to achieve long-term reform.

The bottom line is that we could be doing a lot better. I would just respectfully ask the Guv to be a bit clearer about exactly what we need to do better. •

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Half a decade later, in the three years to December 2014, Australia’s working age population grew by just over a million people. Yet this time the number of jobs grew by only 385,000. For every one hundred extra adults, in other words, we generated just thirty-eight new jobs. Compared to the ninety-four new jobs created for every one hundred extra adults just before the global financial crisis, that’s some shift.

Sure, the labour market did better in 2014, but only slightly. Last year, there were forty-six new jobs for every one hundred new adults – and just twenty-eight of them were full-time.

These figures are another warning that the Australian economy is not doing as well as the cheerleaders claim. If they were right, we would be seeing something like normal growth in jobs. But for six years now, job creation has been nothing like normal; and it still isn’t.

Nor, despite an upturn in job advertising, is it likely to be normal any time soon. The big plunge in mining investment is still ahead of us: it will happen over the next three years, at the same time as the car industry shuts its doors and our main customer, China, struggles with the looming bust of its huge, oversupplied housing market.

We don’t analyse labour market statistics well in this country. Financial commentators focus on the monthly zigs and zags of movements in the seasonally adjusted jobs and jobless numbers, as if they mean something. Usually they don’t. The Bureau of Statistics monthly survey, big as it is, is not big enough to stop the static created by different random samples from drowning out the music of what is really going on.

For twenty years, the Bureau has been telling us to focus on its trend estimates. They iron out the monthly volatility to try to come up with a truer index of what is happening in the labour market. I follow its advice, and those are the figures being quoted here.

Similarly, when you look at the labour market’s performance over longer periods, you get a better understanding of what’s happening than you get by focusing on monthly movements. And when you look at the very long-term data – such as average movements over thirty years – you get a benchmark of what is normal, against which you can judge what is happening now.

What is “normal” jobs growth, as defined by the past? Well, although the thirty years to mid 2011 saw two recessions and three slowdowns, those years still averaged, in net terms, 690,000 new jobs for every million people added to the working age population – or sixty-nine new jobs for every one hundred new adults.

For every one hundred adults Australia added between 1981 and 2011, in net terms, thirty-six went into full-time jobs, thirty-three got part-time jobs – mostly by choice – three became unemployed, as the Bureau defines it, and twenty-eight either left the workforce or never entered it.

You might think this is a poor outcome. But it wasn’t bad at all, considering that the official definition of “working age” includes everyone aged fifteen and over, including schoolkids, carers and people in their seventies, eighties and nineties who we would not think of as “working age.” And their numbers were growing fast.

Employment climbed from 57.7 per cent of all adults in 1981 to 62.1 per cent in 2011, although almost half that growth was in part-time work. Unemployment fell from 5.7 per cent of the workforce to 5.1 per cent.

Two areas were of concern, though. First, hundreds of thousands of men in their prime years dropped out of the workforce completely. Some were homeless, disabled or suffering from a disabling addiction, or living in areas with no job prospects. In the 1960s, just 2 per cent of men in their prime years (twenty-five to fifty-four) were outside the workforce; now 10 per cent of them are. They are not even looking for work; they have dropped through the cracks.

Second, more than 70 per cent of the unemployed want full-time jobs, but even between 1981 and 2011 almost half of the jobs created were part-time. The Bureau figures imply that 8 per cent of all job growth in that period went to people who took part-time jobs because they couldn’t find full-time work. What it calls underemployment soared from 2.8 per cent of the workforce in 1981 to 7 per cent in 2011.

But what made those thirty years good was that despite an ageing society, workforce participation climbed from 61.2 per cent of the adult population in 1981 to 65.4 per cent in 2011. That was mainly due to the long surge of female employment, which swelled at all ages over twenty-five, with dramatic growth in jobs among older women.

The same has been true for older men, as more and more of us choose to work on into our sixties and beyond: in the year to last June, 26 per cent of Australians in their late sixties – almost 300,000 people – were still in work. Even more surprising, perhaps, 125,000 people in their seventies or eighties were still working. Roughly one in thirty of Australia’s workers are now sixty-five or over.

But far more Australians retire completely in their sixties, and life expectancy among older Australians is rising at startling rates: for men aged sixty, life expectancy is expanding at the rate of nine years in every half-century. That success story is creating headwinds for the economy and the job market, and they are growing stronger each year.

We could be doing a lot better than we are. In the past three years, job growth has been barely half of its long-term average. Let’s look at the numbers to see how the last million Australians to enter adult life (in net terms) have fared, compared to those in the previous generation:

These figures show how much the economy has failed since 2011 to keep up the momentum of the past.

Australia is simply not creating jobs – especially full-time jobs – at anything like the pace needed to regain full employment. Labour-intensive industries such as manufacturing and retailing have struggled or shrunk; and as profits go, jobs go. Manufacturing has lost almost 150,000 jobs since 2008; retailing has added fewer than 20,000 jobs in that time.

Mining construction was the main driver of growth in 2011 and 2012, and it is a capital-intensive activity, creating few jobs. Mining exports have been the main driver of growth in 2013 and 2014, and modern mining requires very few workers, operating very large machinery.

That’s why only 38 per cent of the growth in the adult population has found its way into new jobs. Almost two-thirds of our population growth has ended up swelling the numbers outside the workforce.

The Abbott government has tried to punish the unemployed by making it harder to get the dole – all $36.83 a day of it – and imposing more onerous reporting requirements. But it is clear that they are the victims of the economy’s failure to create enough jobs for those who want to work.

On top of that, most jobs created since 2011 are part-time, yet most unemployed workers want full-time work. The lack of jobs has seen unemployment grow to its highest level since 2002. But because most jobs being created are part-time, the Bureau estimates that the rate of underemployment – mostly, people wanting full-time work, but forced to take part-time jobs – has shot up to a record 8.5 per cent of the workforce.

More than a million Australians are now underemployed, with profound effects on household finances, spending, happiness and general wellbeing. The Bureau estimates that the number of underemployed workers has swollen by 205,000 in the past three years, while the number in full-time jobs grew by 145,000. If someone tries to tell you how well the economy’s doing, just remind them of that.

There’s a third problem. The biggest growth in the adult population is not among those who are employed, or unemployed or underemployed, but among those who are not in the workforce at all.

In the past three years, in net terms, for every one hundred extra people of working age, forty-seven either left the workforce, or never entered it. Some of that loss, maybe half, is unavoidable: it reflects an ageing society, which itself reflects good healthcare. The impact of ageing on jobs is now intensifying as the demographic bulge of the baby boomer generation moves into its sixties; in the weak job market, even employment rates among workers aged fifty-five to sixty-four are now falling.

In four years, the number of adult Australians not in the labour force grew by 650,000. The number in work grew by just 481,000. The number in full-time work grew by just 209,000. That is not a sustainable trend.

These three problems – unemployment, underemployment, and people dropping out of the workforce – essentially reflect a weak economy. But they are intensified by the impact of an immigration policy inappropriate for an economy in low gear.

There are two key differences between Australia now and the Australia of the previous thirty years. The rate of population growth has lifted sharply: in round figures, from 1.25 per cent a year to 1.75 per cent. And that is because the net migration rate has doubled, from 0.5 per cent to a bit over 1 per cent.

Growth of 1.75 per cent means the population is growing by almost 400,000 each year, and by a million every two-and-a-half years or so. It means that when the economy is growing by 2.7 per cent a year, as it is, growth per head (the real bottom line) is less than 1 per cent a year. And it means that an economy our size needs to create more than 200,000 jobs a year – about 150,000 of them full-time – just to stop things getting worse, let alone make up the ground lost since 2011.

A net migration rate of more than 1 per cent means that each year Australia is adding between 200,000 and 250,000 more migrants than it is losing. I have no problem with that, if there is enough work around to employ new and old Australians alike. But the jobs figures make it clear that there isn’t.

The problem is exacerbated because a growing proportion of migrants are being brought here, on section 457 visas and other means, by employers to do specific jobs, rather than employers training Australians to do them. This inevitably means fewer job opportunities for existing workers.

This shortfall could be made up if the temporary workers spent enough money here to employ the existing workers they displace, but that is unlikely. The Bureau does not measure remittance payments – a serious omission in its database – but it is clear that many temporary workers are here precisely because they plan to send much of their earnings home to their families.

In good times, there’s nothing wrong with that either, but these are not good times. Immigration policies need to fit society’s needs; running a high immigration program amid low job demand is bad economic policy. The Menzies government knew better; it controlled the immigration tap to keep the long boom going. We should learn from our past successes.

The result of our employer-driven policy is that people born overseas took almost three-quarters of the net growth in full-time jobs in the two years to April 2013. In net terms, people born overseas gained 97,000 more full-time jobs, while Australian-born people gained just 34,000.

That means the economy created only one new full-time job for every ten Australian-born people aged fifteen and over who joined the notional workforce. That is clear policy failure.

Take all the figures together, and it is clear that the labour market is doing far worse than the trend unemployment rate of 6.2 per cent suggests. The Bureau estimates that its broader measure of labour force underutilisation, which includes the underemployed, has risen to 14.8 per cent. And it does not include the rapidly growing numbers entirely outside the labour force.

Why Australia’s labour market failed so badly after early 2011 is another story, for another day. Poor policy choices must take a lot of the blame. The international environment was unhelpful, but successive governments and the Reserve Bank made bad calls, for which our jobseekers are now paying.

We need to focus more on how we create an environment that will generate the jobs Australians need. •

The post Australia today: a million new adults, just 385,000 new jobs appeared first on Inside Story.

DURING the last two federal election campaigns the Coalition promised new measures to tackle long-term unemployment. That pledge has found its way into legislation that would create two new payments to encourage people to rejoin the workforce. Labor has largely supported the bill, which is currently before parliament, but the precedent it sets for New Zealanders living in Australia has inflamed opinion across the Tasman.

The first of the new payments is a Job Commitment Bonus. Job seekers aged eighteen to thirty who’ve been on benefits for twelve months or more will receive a tax-free payment of $2500 if they remain in “gainful work” (and off welfare) for at least a year. After two years, they’ll receive an additional bonus of $4000. The second – with its less catchy title, Relocation Assistance to Take Up a Job – replaces the existing Move 2 Work program and offers unemployed people payments of up to $6000 (more if they have dependent children) if they need to move house to find work.

Although Labor MPs supported the bill in the House of Representatives, they argued that, by failing to create jobs or increase skills, it doesn’t go to the heart of the youth unemployment problem. They were also concerned about the expanded penalties in the relocation scheme: anyone who quits a job “without a reasonable excuse” within six months of receiving a payment will be barred from receiving any benefits for twenty-six weeks. (Under the previous scheme the non-payment period was twelve weeks.) Overall, however, this is not a particularly contentious piece of law-making.

Why, then, is the prime minister of New Zealand being questioned about the bill in parliament in Wellington, and why has he directed diplomats at the New Zealand high commission in Canberra to register his government’s concerns with the Australian government?

At issue is the fact that the bill redefines what it means to be an “Australian resident” in an unprecedented and highly specific manner. As a result, New Zealanders are excluded from the new job commitment bonus, regardless of how long they have lived in Australia.

Here, a bit of history is required. New Zealanders enjoy the right to live and work indefinitely in Australia – a right that was formalised under the 1973 Trans-Tasman Travel Agreement – and for a long time they were essentially treated as permanent residents. That changed when the Howard government amended the definition of “Australian resident” in social security laws to exclude New Zealanders. The Howard changes were prospective – they only applied to those who crossed the Tasman after 26 February 2001. So while newcomers couldn’t receive many government welfare payments (including unemployment, youth and supporting parent benefits), Kiwis already settled in Australia still could.

This division – between pre- and post-2001 New Zealanders – is expressed in the arcane bureaucratic language of visa categories. New Zealanders who arrived before the changes are deemed to hold a “protected special category visa”; their compatriots who arrived after the changes hold a “non-protected special category visa.” Of the half a million or so New Zealanders settled in Australia, about 200,000 are estimated to fall in the unprotected category, and their numbers are continuing to rise.

Regardless of the inequities involved – and there are many – the distinction between these two categories has, until now, remained completely clear. The new bill, however, qualifies “Australian resident” to exclude anyone who holds a special category visa – protected or unprotected – from eligibility for the job commitment bonus. As the bills digest prepared by the Parliamentary Library comments, this is “an exception to the usual practice in Australian social security law” and “a change without precedent in the entitlements offered to this group.”

Since the job commitment bonus is only payable to long-term job seekers aged between eighteen and thirty who find gainful employment for at least twelve months, the changes will not affect a large number of New Zealanders. Those who arrived after 2001 would be excluded anyway, as would many who arrived earlier (because they would be too old to be eligible). No doubt there will be some individuals who will be denied the payment – a New Zealander who arrived in 1990 at age two and is now twenty-six, for example, despite being an Australian resident under any common sense understanding of that term.

Given the focus on one very specific payment, it is hard to understand why the provision has been included at all. The cost savings are likely to be tiny. Given the intention of the bill – to encourage the long-term unemployed to become independent of government payments – it would make sense to include “protected” New Zealander welfare recipients in its scope.

This has led New Zealanders on both sides of the Tasman to interpret the provision as a signal that further changes are on the way – that, far from acceding to persistent and growing demands for fairer treatment of Kiwis who arrived in Australia after 2001, the Abbott government may be preparing to head in the other direction. On this reading, the entitlements of all New Zealanders – including those who settled before the 2001 changes introduced by John Howard – would be at risk.

This seems a reasonable interpretation of the explanatory memorandum to the bill. Under its statement of compatibility with Australia’s human rights obligations, the memorandum says that protected visa holders “will be treated like other New Zealand citizens” for the purposes of the Job Commitment Bonus.

This sets a “very dangerous precedent,” says advocacy group Oz Kiwi. It suggests that the entitlements of “protected” special category visa holders are not protected at all, and can be diminished “however and whenever” the government wishes. Oz Kiwi says the Australian government is “using its poor treatment of post-2001 arrivals to justify stripping rights from pre-2001 arrivals in the name of equality.”

Whether or not this is the intention will only become clear in future legislation. If it does, there may not be much that New Zealanders in Australia or the New Zealand government can do about it.

Of the thirty-one speeches during the second reading debate over the bill only two – by Labor MPs Jim Chalmers and Julie Collins – raised concerns about its treatment of New Zealanders. After scrutinising the bill, the Parliamentary Joint Committee on Human Rights resolved to seek clarification from the employment minister “as to why it is considered necessary to exclude protected SCV holders from accessing the Job Commitment Bonus, and the basis for considering that their inclusion may jeopardise the goals of the measure.” The reality, however, is that New Zealanders resident in Australia don’t vote and don’t carry much clout.

Official protests from New Zealand may not have much impact either, even with the marked change of tone. In his answer to the question put to him in parliament, prime minister John Key used the terms “discriminate” and “discrimination” to refer to Australia’s treatment of New Zealanders – stronger language than he has been known to use previously. Existing restrictions on New Zealanders’ entitlements in Australia are, however, evidence of diplomatic battles fought and lost in the past. •

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CHRISTMAS has come early to Mount Street, Mount Druitt. Well, not Christmas, exactly, but a red-and-green polyvinyl chloride substitute for the spirit of Christmas – a blow-up Santa as big as the Ritz popping in and out of a blow-up box. The offices of Max Employment, in the western suburbs of Sydney, have been decked with everything but holly. There are streamers of paper Santas, a puce-coloured blow-up reindeer and a banner with the words “Santa’s Jobs Workshops.”

Two Easter Island–sized Islanders in trackies and tatts come in and go out again. Inside, they log on and off the employment agency’s computers, one of the requirements of the activity test imposed on people on the dole. Job-seekers anywhere in Australia who receive the payment with the Orwellian name Newstart must demonstrate that they are out looking for “suitable” paid work, going to job interviews and accepting “suitable” offers, but all this activity won’t hold them up long in Mount Druitt. Here, there are almost as many job agencies as jobs: seven agencies, in fact, and twelve full-time jobs when I last checked.

There’s so little work around that hundreds of people rush to Coles or Woollies if they advertise a casual position for a cashier or trolley collector. But the unemployment industry is thriving, as it is in many other areas where joblessness is over 10 per cent, not least because the government pays the agencies fees, whether the people on their books get a job or not.

That’s how it’s been since the Howard government privatised the old Commonwealth Employment Service, or CES, in 1998. What had been a public service was chopped up into market shares and assigned to non-profit and commercial providers.

By now the biggest single share – nudging 10 per cent – is in the hands of MAXNetWork Pty Ltd (which trades as MAX Employment), the wholly owned subsidiary of an American corporation. The company’s financial statement filed with the Australian Securities and Investments Commission shows that in the year to 30 September 2010, MAXNetWork collected about $125 million in fees and about $41 million in related payments from the government, a reliable revenue stream that contributed to after-tax profits of $30.4 million that year.

The figures give a glimpse of an industry that has stayed out of the spotlight while scooping up about $1.7 billion a year in government funding (and hundreds of millions more if providers double up and run recruiting businesses on the side). Instead, attention falls on the supposed beneficiaries of all this largesse – the people on the dole or on disability benefits. Yet a study by the Department of Employment, Education and Workplace Relations published in 2006 found that people left to their own devices were only ten per cent less likely to end up with a job than those being churned through the system. And things are much as they were. In a recent review, consultant Lisa Fowkes, the former chief executive of the Job Futures network of community-based employment services, concluded that the system has been “tweaked, not fundamentally changed.”

The agencies have been forced to tender three times since the CES was replaced by the Job Network and then replaced, in turn, by Job Services Australia. The third time was in 2009. The tender process was contentious. Some organisations refused to participate. Some that had scored well in previous ratings of performance lost their contracts. Once the dust settled, half of the Rudd government’s $3.8 billion Job Services Australia contract was in the hands of private enterprise, with MAXNetWork projected to receive $321.7 million over three years. When I submitted a series of questions about its finances and its operations, the company declined to comment. So did Mission Australia, which picked up the second-largest share, valued at $246 million. Next came the Salvation Army with $206.7 million, then another for-profit, JobFind Centres Australia Pty Ltd, with an estimated $177.4 million, ahead of another 125 companies, charities and community organisations, with contract shares valued at anything from $40,000 to $97.9 million.

The agencies are in competition, but one effect of a system subject to commercial pressures but strangled in red tape is that there may be little to choose between them. I proceed from Max Employment to Mission Employment and from Mission Employment to JobFind, where the placards and posters say “Anything is possible” rather than “All I want for Christmas is a job.” But going from one agency to another and one suburb to another only serves to strengthen the impression that these offices, with all their furniture and the sometimes out-of-date job lists tacked to their walls, are like props in a Potemkin village version of the performance-based contracting model set out in the paperwork.

WHEN the current system came into operation in 2009, I happened to have started work on The Short Goodbye, a book about the financial crisis, so I was talking to people who had just lost their jobs. Gary Leffley had been working as a crane operator at an aluminium factory in Sydney when about half the men there were sacked on the spot. Fifty-three at the time, Leffley was something of an anomaly, a neat, meticulous man who lived on his own and liked to make rueful observations about what was going on around him. He was just the person to bring back reports from the front line.

Leffley had gone to the Mission Australia job agency in the suburb of Merrylands and been offered routine advice: undertake a training course. The agencies are expected to offer people the training or preparation they may need to help them find a job, drawing on a fund that provides up to $1100 a head for those who face barriers to employment. In practice, this can mean that people are instructed at great length in how to dress for interviews, write resumes and research jobs online. Cast adrift after years of steady employment, many will find this training useful at first, as Leffley did. But he wasn’t convinced he needed a one hundred–hour course, which is what it was – on paper, at least.

“What I found was you’d go in there, you’re supposed to spend four or five hours there. Some days after an hour and a half they’d say just ‘sign off and we’ll say you’ve been here for four hours,’” he said. He went to the agency’s office, around the corner from his rented flat, day in and day out, but not even his case manager said goodbye when he was transferred from one agency to another. While he found the other agency more satisfactory, other job-seekers are happier with Mission Australia. The problem is not with the particular agency but with the system.

In a research project begun at the time the CES was being privatised, political scientist Mark Considine investigated the reform of employment services in Australia, Great Britain and the Netherlands for his book Enterprising States: The Public Management of Welfare-to-Work. When he looked at them in the late 1990s, there were significant differences between public, for-profit and non-profit services in all the countries, says Considine, now dean of the Faculty of Arts at the University of Melbourne. The public employment service was impersonal but more equitable, giving everyone a similar share of attention. The non-profits dealt with far fewer people but spent more time with them. The for-profit services were somewhere in between.

Ten years later the differences had either flattened out or disappeared altogether. This convergence was particularly striking in Australia, where the whole system had been put up for tender, says Considine. The agencies had all adopted a business model that had them creaming off the more promising job-seekers and parking the rest with the growing pool of long-term unemployed.

Yet the government has swathed the system in so much red tape that Jobs Australia, the peak body for the non-profit agencies, has found its members spend half their time administering and complying with the 3000 pages of requirements written into the contract, including nine minutes in every hour on paperwork that duplicates information collected by Centrelink. No doubt the boxes all get ticked – and yet half the people on the books fail to get any job at all, not even a casual job for half a day a week.

AFTER sampling the services for myself, I have a fair idea why. I first did so almost ten years ago, when the Howard government’s Jobs Network was in operation. I had taken leave from my job as a newspaper feature writer to research a book about low-wage jobs by doing some of the jobs myself; one was in an agricultural town in the Riverina. I telephoned an employment agency in the town beforehand and was instructed to fax my resume and references. Walking into the office a few weeks later and mentioning my resume earned me a blank look from the Cassandra I had spoken to on the phone. “We get hundreds of them,” she said, handing over a fistful of forms for me to fill in. I was handed more forms at the next three agencies I visited. I dropped in on all four offices day after day, but none of them ever contacted me about a job and none thought to tell me that anyone with a pulse could get a job at the chicken processing plant, as I eventually did.

I tried job-hunting again when I was writing the book about the financial crisis in 2009. I had just been retrenched by the Australian, so I decided to see if Job Services Australia was any better. Looking online, I was bemused to find that the government measured the performance of the agencies with “star ratings.” I found one with four out of five stars, not too far from where I lived, chancing on Max Employment in the Sydney suburb of Maroubra. Several other agencies in Maroubra had just closed down after losing their contracts: with 2000 people on the books, all of a sudden, Max Employment was trying to hold them at bay.

I came in the day of the appointment to learn that I was there only to fill in more forms. Keeping me off the streets, I guess. Eventually I got in to see a staff member. The government had made the grandiloquent claim that it would not “give up on those who lose their jobs due to the global recession,” but as far as I could tell my consultant gave up on me the moment I turned my back. The interview lasted seventeen minutes. I let her know I could do office work and she let me know that as someone able to go to another job there and then I had been lumped into what the government called Stream 1, which meant I wasn’t worth a row of beans to the company.

“The government doesn’t give us funding for clients in Stream 1, that’s the catch,” she said. The government had trapped itself in the sort of trompe l’oeil version of policy that has been around since the privatisation of the system. It proclaimed that it had a “compact” with the workers laid off during the recession. But what DEEWR was doing meanwhile was re-ordering the funding arrangements to provide less money for Streams 1 and 2, which included many of the people just made redundant, and more money for the job-seekers in Streams 3 and 4, who faced “significant” or “severe” disadvantage.

Max Employment would have made some money out of me – a grand total of $63 – if it had done everything that the DEEWR website claimed it would do for people in Stream 1 – helping me with my resume and reviewing my circumstances at face-to-face meetings over thirteen weeks. There was no risk of that. I never heard from them again.

Why would companies that operate for profit do something that costs them money instead? But once again, it wasn’t the particular agency at fault. The way the system had been set up forced providers to pick and choose where to put in the effort. The way to make money out of the long-term unemployed in Streams 3 and 4 was to ensure they were doing something, if only another course in preparing for the job interviews that so seldom eventuated. If the agency doubled up as a training enterprise, it could claim for the course - and collect the outcome fees for the progress the person was said to be making. There was no way to make money out of Stream 1. The way to make some money out of Stream 2 was to cream off the job-seekers with the best prospects. It helped explain why so many older people were written off right away.

Two years ago, Pacific Brands, the company that produces Bonds underwear, Berlei bras and King Gee overalls declared it could no longer afford to manufacture in Australia and would henceforth have its stuff made in China. Other factories were closing without anyone but the redundant workers batting an eyelid, but Bonds and King Gee were household names: what with one thing and another, Pacific Brands was soon agreeing to make special provision to support the 1850 workers who were to be laid off.

The textiles union decided to use its limited resources to find out what happened to those employees. Remarkably, it managed to stay in touch with 1193 of them. One in five had worked for the company for more than twenty years, according to Michele O’Neil, the national secretary of the union, but a record as a steady worker did not bring them steady work.

By May this year, the union calculated, 44 per cent were employed, but three in every four of them had only been able to find casual short-term jobs. The advice the employment agencies had handed them was as dispiriting as the result. “The women are told you are going to find work in hospitality, aged care, child care and retail,” said O’Neil – which was true, as far as it went. Those who found work found casualised shiftwork at rock-bottom rates of pay. For the men, the equally dreary advice was to get a forklift licence or a truck licence and look for work in transport, logistics and construction – industries in which the precarious employment on offer is a little better paid.

Intent on minimising unemployment figures, if only by forcing people to find scraps of work (one reason the number who are underemployed now exceeds the number who are out of work), Liberal and Labor governments alike structured the system so that the profits employment agencies make depend on following the course of least resistance. The agencies are paid an “outcome fee” between $675 and $1750 if job-seekers get work of one kind or another and go on working for thirteen or twenty-six weeks. It could be a job for six hours a week for thirteen weeks; it could be ten jobs spread over thirteen weeks. The agency gets the fee either way.

What it means to job-seekers is a life of continuing uncertainty. It hasn’t escaped the attention of employers that they can call on a pool of casual labour whose agreement with Centrelink means they can’t say no. Michael Beattie is another original – a rigger who taught himself to read music and play the recorder to while away the interminable hours stuck in the cabin of a crane high up in the air. Beattie often gets work through his job agency, Salvation Army Employment Plus at Port Stephens, north of Newcastle, NSW.

They’re very good, he says, but if they call him in to tell him about a job that’s come up, there’s always a break in the conversation. “You ask the rate of pay. They can’t say. It happened when I was offered work as a crane driver.” The job was at a goldmine in another NSW town . There was the usual argument afterwards about money. “The agencies send you to these jobs and the employer underpays you. But if you reject the job you can be in breach of your employment agreement.”

“The debate is all about the unemployed but there are a whole lot of unemployed people who get up every day, who’ve worked for twenty years straight, who are perfectly willing to work but cannot get a job,” says Lisa Fowkes, whose paper for the Whitlam Institute, Rethinking Australia’s Employment Services, ought to be required reading for politicians broadcasting their views about the 2.6 million working-aged Australians outside the labour market. Fowkes drills through the data to work out what effect the system is having on the people who get the blame for its shortcomings.

“If you look at the raw numbers… you see that just eight or nine per cent of the long-term unemployed get full-time work,” says Fowkes, who is familiar with the realities on both sides of the counter. “If you have a caseload of 100, 150 people, you’re going to be making a decision every day about how much time you spend with people.

“But no one is taking responsibility for the fact that many people don’t have a positive experience of the system and many people don’t end up with a job. Read the description on the website and you’ll think you’ll be getting a personalised service,” she says. “But in most cases you won’t, even though everyone is doing what they are supposed to.”

The people in question may find the experience as unsatisfactory as Gary Leffley and the Pacific Brands workers did, but they had better not vote with their feet. If they neglect to show up at the job agency when they’re supposed to be there – if only staring in mystification at the computer – they may find their NewStart payment suspended for eight weeks. The number of people “breached” for failing to comply trebled between 2009 and 2010, Maree O’Halloran, the president of the National Welfare Rights Network, tells me. The organisation has made representations to government about it but the government is more insistent about compliance than ever. “If we’re talking about making people job-ready that’s what employers would expect,” Kate Ellis, the minister, says firmly on the phone from Western Australia.

KEITH Hemingway is the sort of person the minister is talking about – a job-seeker long ago consigned to Stream 4 who only gets noticed when he does the wrong thing. Hemingway lives in Port Kembla, up the road from the sprawling steelworks, in a little room over one of Port’s many hotels. It used to be that around this time, after the afternoon shift, the steelworkers were three–deep at the bars up and down the street. Now there’s just three old men – Macedonians – playing chess for points on the back verandah of the Port Kembla Hotel, where Hemingway sits having a beer with a friend. He looks knocked about, with a shock of white hair and a gap between his front teeth. He has been in and out of work for years but as it happens now has a job at a local recycling place. He works every Monday and Tuesday but his case manager at his job agency in Wollongong keeps leaving messages telling him to come in for his appointment on Monday.

“They make the appointment on them days, then wonder why I don’t turn up,” he says. The first time it happened he reminded them he worked Mondays, surprised they didn’t remember, since they had found him the job. Then it happened again. They’ve done it five times now, Hemingway says, not sure why it upsets him so much. I suddenly remember what Gary Leffley said the last time we talked. “The way it works, you’re just a number in a machine and they spit you out the other end…”

Leffley, meanwhile, had gone from the agency around the corner from his flat to another agency in Parramatta, which spruced up the resume he had produced in the hundred-hour resume course and found him a job in a meatworks, cutting up pork with a bandsaw. He stuck it out for six months, went back to his agency and was signed up with a labour hire firm. Over the next six months he worked in four or five factories. The meat pie factory was followed by the factory making Cheezels and then he found himself at Aristocrat making bits of poker machines. Sometimes he would get an SMS at five in the morning asking him if he could start work at six. “I worked almost every week. Mostly it was three or four days. Then it stopped. I rang them up a few times and they’ve said there’s nothing.”

The government used to subsidise labour hire firms for doing what they would do anyway, paying those that were registered as job placement organisations for placing people in jobs. This had been stopped. Curious about how the agencies now split fees and percentages with companies paid for providing labour, I contacted one agency’s head office to ask about the commercial relationship with particular labour hire firms. The amiable PR woman went away to check and rang back to say that each of their offices was free to make their own arrangements.

What was more striking from Leffley’s point of view was that the offers of work from the labour hire firm had stopped so suddenly – six or seven months after they started. He kept calling but they never called back, says Leffley, who has just gone onto disability benefits.

And me? I never heard another word from Max Employment in Maroubra, but I did hear from a public servant in Canberra. He wanted to know what I thought of the services they had provided. I ignored the letter. Three weeks later, I got another one, sharply reminding me I hadn’t replied. I filed it. •

The post Unemployed and wrapped in red tape appeared first on Inside Story.

Set against a backdrop of featureless fluorescent-lit offices and reception areas and an endless succession of beige job expos, Florence Aubenas’s The Night Cleaner chronicles the search for a job at the height of the slump that began in 2008. The respected French journalist had been writing and talking constantly of “the recession,” and yet she felt disconnected from what the word really meant. “It seemed to me, all of a sudden, as devalued as the shares in the stock market.” Her solution was to jump the divide and plough head first into an unemployment queue.

In the tradition of Fran Abrams’s Below the Breadline, Elisabeth Wynhausen’s Dirt Cheap and Barbara Ehrenreich’s Nickel and Dimed, Aubenas went undercover, assuming the identity of a middle-aged woman with no employment history and no job prospects — in the language of the system, a “statistical high risk.” But she pledges to continue her search until she attains a full-time job, and in the process becomes another problem for employment agency workers at Pole Emploi as they drown under the weight of statistics and targets. Reduced to an object of management speak, she is advised to turn to a “particular speciality — cleaner.”

As Europe continues to rupture under the weight of the Greek debt crisis, Italy teeters, and talk circles around the possibility of the break-up of the euro, Aubenas’s account, although based on events two years ago, is still very relevant. In 2009, she writes, the recession was already something that “happened a very long time ago, ages and ages ago, last year…” It is a one-off event, and it comes without warning — the jobs simply fall through the floor.

“Suddenly, during winter 2008, we were officially declared to be in recession,” she writes. “The radio talked about it morning, noon and night. Every day, 3000 more unemployed signed on with the agencies, and in a few weeks the administration found itself struggling under the weight of 70,000 unexamined files. Such a thing had never been seen before.”

Alone and anonymous, she takes residence in the city of Caen, as featureless as the offices she cleans, and literally neither here nor there, “neither too far north nor too far south, neither too big nor too small.” She limps along the highways of Caen in her bomb of a car following up job interviews, only to be told when she arrives that the position has been filled.

In the town’s prime, more than 20,000 people worked in the eight big factories that circled Caen, “all pointed to as an example of how France was able to combine its fields of potatoes with its coke furnaces, and how the country had picked itself up after the war and was decentralising its industries and marshland, ducks, and bombed-out buildings.” Now, the buildings rot around her, and she could be anywhere, in any city across Europe or America, in cities and towns hollowed out, directionless, without community, without a centre.

Like those of her fellow job-seekers, Aubenas’s needs are simple. She wants something that pays at least the minimum wage, boasts a back-to-back shift, doesn’t require a three-hour drive across town eating up half her pay packet in petrol, and won’t break her back. And yet, as a client of Pole Emploi, she must endure master classes in massaging her CV and day-long clinics on “The Cleaning Professions.” Her “main specialties” on her freshly reworked CV are listed as “the routine cleaning of premises and work services, picking up waste paper, cleaning furniture and accessories (ash trays, waste paper baskets, etc), management and follow up of jobs at various sites.”

Trudging into the darkness of the day to begin work, huddling in idling cars waiting for offices to open — biding time is the hallmark of this book. Aubenas’s life of queuing, endless interviews and filling time between shifts is punctuated by short bursts of equally monotonous but nail-bleeding work.

Her description of one of the eight Pole Emploi sites around town captures her state of being — always restless, always on call, never at ease, at home nowhere:

Everything seems designed to create a sense of almost blank discomfort, where nothing invites you to settle down, or even to linger any longer than the time absolutely necessary for the formalities. The room is a big lobby which acts simultaneously as a reception desk, a waiting room, and a telephone cabin for people to pursue their quest. You can also consult the job offers on computers. These functions are not separated by any partitions, and everyone is standing, behind counters as tall as a man, so that the people, the agency’s advisors included, seem to be floating around the draughty space, between the drab coloured walls.

The people Aubenas encounters during her search for work — the cleaners, queue members, agency workers — also seem to float. They are featureless, in limbo, and yet there are moments when their frustration suddenly punctuates the text: when an angry outburst interrupts the fluorescent hum of the job agency waiting room as a desperate job seeker shouts that they “just need to work,” or in the story of the “Moulinex girls,” fiercely proud women who mourn the loss of their beloved workplace, one of the first factories where women could work in the sixties, and the “last big one to close down, in 2001, after negotiations in Paris, marches, and coverage in all the French media.”

There’s Victoria, the seventy-something-ish woman who’s been a cleaner, and union member, all her life; Phillipe, who simply longs to get back behind the wheel of a car he can’t afford, to assume the stature of someone with a set of wheels; and the elderly couple marching in a union rally gently berating their children for their grudging attendance.

Although it is enormous, this rally that features halfway through the book, it doesn’t compare to the violent union protests of the seventies, Aubenas notes; it’s a demonstration that has no anger in it, “no real slogans, as if its only claim is in its sheer mass.” She observes that this giant march of people “no longer seems to be borne along by certainties or grievances, but merely crisscrossed by questions which fly from one group to the next: ‘How many of us are there? What are we going to do? How long is it going to last? Where are we going?’” Their questions anticipate those of the students at the Spanish education protests, the angry Greek rioters, the Italians who camped out baying for Berlusconi’s blood, and the 99 per cent of the Occupy movement.

Aubenas ultimately washes into the beige walls and attains the anonymity of a cleaner: slipping around the halls of a ferry at night staying out of sight of the passengers; knocking over a pail of dirty water across a freshly waxed floor and cleaning it on hands and knees as the arriving office workers step around her; and tending to the coffee stains and mess in yet another office. Her identity is erased entirely in one confronting moment when she realises that two office workers who’ve stayed back late have begun to have sex in front of her as she vacuums in the corner. Aware of her presence under the fluorescent lights, they remain completely oblivious to her shock and discomfort as the vacuum hums over their grunts.

This is an uncompromisingly bleak account of the search for humanity in the dehumanising search for work. Aubenas’s methodical account might be grinding and unsentimental at times, yet she gives voice to the anger and helplessness of the case workers and the clients united in a common goal: to shift their vast numbers off the employment agency’s books.

Now more than ever it is a stark reminder of the gap between the headlines of the European meltdown and the reality of the lives of people who have fallen, and will continue to fall, through the cracks. •

The post Falling through the floor appeared first on Inside Story.

— Former finance minister, Lindsay Tanner, speaking at the State Library of Victoria on 30 July 2008

ABDULKADIR SHIRE and Ali-nur Duale are masters of disguise. The two Somali men, now in their fifties, have spent more than thirty years between them applying for jobs in Melbourne. Their tactics have ranged from the shrewd (omitting their nationality and native language on their CVs) to the downright devious (“de-Arabising” their first names by replacing them with initials). But their real skill is one that not many people would think of bringing to the job market: making themselves look unintelligent on paper.

They call it “downskilling”: cutting from their resumés any hint of a qualification or achievement that might make them appear too smart for the jobs they’re applying for. In Duale’s case, that means hiding a PhD in applied entomology and a distinguished career developing crop protection programs for farmers in Africa and India. In Shire’s case, it’s a Masters in petrochemical engineering and a diploma from Victoria University that don’t get mentioned.

But both men have given up that battle. Last October, after seventeen years and more than 300 failed job applications, Shire packed his bags and moved to Brisbane, where he is now helping his wife start a family daycare business. Duale is resigned to continue working as a casual interpreter for a refugee translation service.

“People say, ‘Why can’t you get a decent job, with all your qualifications and experience?’” says Duale, who is often described in his community as the most qualified Somali in Australia. “And I have to lie and tell them I just want to do something to help my own people. I’ve even told my children this untruth.”

No one has calculated the loss of allowing so many of our best and brightest residents to work as drivers, translators, cleaners or security guards. The “PhDs driving taxis” headlines have come and gone, but hundreds of experienced doctors and accountants and engineers are still driving cabs and doing menial part-time jobs on hourly wages to sustain their families and relatives overseas. Hundreds more have given up entirely, resigning themselves to a perpetual life in the slow lane.

Africans, the newest, most foreign group in our cultural melting pot, are invariably suffering the most. Some say it’s always been this way: the waves of Greeks, Italians, Lebanese, Vietnamese and other migrant groups who arrived between the 1950s and 80s all struggled just as hard to find sustainable jobs. But the evidence strongly suggests otherwise. As an Englishman who was offered his first professional job within two weeks of landing in Australia, the stories of Duale, Shire and dozens more Somalis I’ve met have forced me to reassess my opinion of Australia as a place where opportunity is guaranteed for new arrivals.

WHEN Lindsay Tanner, former finance minister and federal member for Melbourne, resigned last June, many members of Victoria’s African community felt they had lost one of their own. Not only was Tanner a critic of the hardening of Labor’s asylum seeker policies, he was also the most visible and vocal of the country’s pro-African “champions” – a regular guest at community events, and a loud advocate for greater training and job opportunities among the country’s least-employed migrant communities. Just a week before his resignation, Tanner launched a report by the Australian Human Rights Commission that found evidence of anti-African sentiment in virtually every sphere of Australian public life.

Of course, you don’t give up such convictions easily. Within weeks, Tanner was back to assisting two Melbourne-based projects he is particularly close to: the Corporate Leaders Network’s African-Australian Project, through which ten high-profile companies – including the National Australia Bank, IBM, Australia Post, BHP and Telstra – have committed to develop training and placement opportunities for African-Australian graduates; and the Horn-Afrik Employment, Training and Advocacy Project, a homespun initiative with 250 “Horn of Africans” – migrants from Eritrea, Djibouti, Ethiopia and Somalia – on its books.

The next year or two could be make-or-break for both projects. The Corporate Leaders Network has promised to “ramp up” its focus on African jobseekers, and after two job-training workshops in which black faces were notably absent it has reserved a third of the thirty-five places at its next workshop for Africans. The Horn-Afrik project, run by a Somali-Australian out of a dingy room in a tower block in Carlton, has secured federal funding for two more years; yet this project, the only African-run initiative linking the Victorian government and industry to support professional jobseekers, has found jobs for only seventeen people in the past three years – and ten of these have since returned to the taxi ranks.

As Australia grapples with increasingly polarised views about our multiracial future, such scoresheets challenge what Immigration Minister Chris Bowen recently called “the genius of Australian multiculturalism.” Conservative commentators continue to portray African communities – and particularly Somalis and Sudanese – as hotbeds of criminality and covert fundamentalism, while popular media outlets stir perceptions of their members as gang members and dole bludgers. But what few people have yet broached are the obvious links between fathers who struggle to find work and children for whom job satisfaction is a concept from another planet.

“If we’re losing the fathers, we will lose their sons,” warns Horn-Afrik’s project officer, Omar Farah. “They will drop out of school, live on the dole, and some will go into crime. If your husband is unemployed, your father is depressed, your parents are talking about going back to Africa – how can you expect that family to be striving to adopt ‘Australian values?’”

Spending a few days with Farah is an object lesson in conviction and its perpetual battle with its evil twin, despair. As the brains behind Horn-Afrik, and a regular adviser to the Victorian government and the Victoria Police, this genial fifty-one-year-old enjoys the unique perspective of being the only African-Australian formally employed to find professional jobs for his compatriots. But his raison d’être – that there are plenty of jobs out there, and colour-blind employers with them – has been tested virtually every day of the twenty-three years he’s called Australia home.

“When I walk down the street in Melbourne, I’m black, I’m probably involved in crime, I’m certainly un-Australian. When I’m out with my family, we’re seven refugees just arrived from Africa (even though all our kids were born here in Melbourne). Back in Somalia, I was the son of the respected Mohamed Farah Dhollawa and any adult in the community could discipline me, which led to a feeling of being protected and looked out for. But there’s none of that expectation, that comfort, here.”

Lindsay Tanner, who has become a close personal friend of Farah, also sees this lack of “familiarity” as the principal challenge – the ultimate fitting-in quality that only time will provide, just as it did for his own Greek forebears. “It won’t be long before the majority of Somalis in Australia are born here – maybe another ten years,” he says. “The real question will be, are those born here having the same opportunities and standard of living and capacity to be part of our society?”

Tanner believes – or hopes, at any rate – that they will. But a growing number of Australians who work closely with the country’s African communities are not so sure. Reverend John Evans has had a front-row seat in the inner Melbourne suburb of Carlton, where his Church of All Nations backs onto a sprawling housing estate where nearly half the 3000 residents are African. “Africans are still not welcome in Lygon Street, fifteen years after they first came here,” he says, referring to the gentrified shopping precinct a stone’s throw away. “They’re just so different from other ethnic groups here. It’s part of that fear of the unknown that defines our society. It’s not orchestrated, it’s not about hate groups or anything like that. It’s just this unfamiliarity…”

In the meantime, the one thing that nearly everyone in government, academia, industry and the community agrees will make a migrant family feel most at home – a decent full-time job – is being withheld by a conspiracy of personal prejudice, professional apathy and persistent media bias. Somalis consistently rank as the least employed of any race in Victoria, with anywhere between 32 per cent and 47 per cent out of work. The conspiracy has become a self-fulfilling cycle. While Asians and other “visibly different” migrants occupy ever more prominent positions in our hospitals, schools, courtrooms and police stations – places associated with legitimacy and trust – the almost total absence of black faces in such venues speaks volumes about our confidence in Africans’ values and abilities.

More than twenty years after Somalis started arriving in Australia in significant numbers, government policy is still geared towards humanitarian refugees, fresh from the refugee camps of northern Kenya, without the money, language or tools to begin their new life in the West. Through a concerted program of support – housing, schooling, healthcare and lots of English classes – these people have gradually found their feet in a new and unfamiliar world. It’s a program that Australians truly can be proud of. But for those Somalis who came under the skilled migration program, who gained their credentials in university halls and government offices, who speak excellent English – those who arguably have the most to offer their new home – one of the world’s most generous humanitarian hosts has little room left in its heart.

IN towns and villages across Somalia, the older men traditionally gather after prayers on a Friday to drink tea and swap wisdom on everything from the timing of the next harvest to the motives of their latest political leaders. It’s a far cry from the urban spill of Point Cook, on the western fringes of Melbourne, where the city’s fastest-growing conurbation is springing up on the seaweed-strewn shores of Port Phillip Bay. But on Sunday afternoons, at one of the little coffee shops in Point Cook’s Main Street, you’ll find at least one of Somalia’s traditions alive and well on the southern edge of Julia Gillard’s electorate.

Here, a dozen or more Somali men gather to discuss everything from plans for a new community centre to personal recipes for encouraging children to learn the Somali language or rebellious teenagers to show more respect for their teachers. The subject of their own employment is, of course, never far from the conversation. A couple of the men are part-time lecturers or have small businesses, but the majority here have never had a full-time job in Australia.

Abdirahman Kulmiye is a newcomer to the group, but his story is all too typical. A highly erudite and well-spoken marine scientist in his late forties, Kulmiye arrived in Australia in early 2007 with high hopes of landing a professional job. This is a man who should get a job in any country with a coastline – let alone one surrounded by sea. His resumé (undoctored, he’s at pains to point out) includes extensive work with the UN’s Food and Agriculture Organization, management of the Fleet Department at Somalia’s largest seafood factory and, for three years, a posting as chief technical adviser to the country’s Ministry of Fisheries. Like Ali-nur Duale, Kulmiye is a PhD holder whose numerous academic papers – including several on the spiny lobster, a sister species of Australia’s sea crayfish – have been cited the world over.

But after dozens of applications for scientific and research postings, and not a single letter of reply, a dejected Kulmiye sent a note back to his old colleagues in Africa – and was immediately offered a job by the Swiss NGO Vétérinaires sans Frontières. Despondent and running low on money, he eventually acquiesced and took up a consultancy role with the organisation in Nairobi.

“The main reason I haven’t been able to get a job in Australia is the catch-22 situation that employers want to see local work experience before they’ll give you any themselves,” says Kulmiye. “I don’t really understand this endless focus on local experience, especially if you have worked for governments or managed international projects at the highest level. Why doesn’t anyone pay any attention to that?”

Berhan Ahmed, a University of Melbourne lecturer who runs the refugee advocacy organisation African Think Tank, has no doubt why. “It’s institutionalised racism, pure and simple,” he says. “Africans use Anglo-Saxon names to get called for interviews, and when they see they’re black they get sent home.”

While I was writing this article, several African job-hunters told me stories that beggar belief about the reception they’ve received from Australian employers. (In every case, they either requested I withhold their names, or called me afterwards to ask me to withdraw their stories; such is the residual fear of authority among even our permanent African residents.) Two experienced accountants told me separately of attending interviews for professional positions in Melbourne, only to be offered jobs as drivers. One articulate research scientist described flying to Queensland to meet a potential employer, who “was very surprised to see a small black man at the airport – so surprised that I knew right away I wouldn’t be getting that job.”

“You get used to hearing the same questions time after time from employers and recruitment agencies,” says Duale. “They ask, ‘Are you sure that African universities offer PhDs?’ or ‘Do you speak the African language?’ Even when I’m interpreting for the government, they’ll be processing a refugee from Southern Sudan and they’ll say, ‘Are you sure you can’t speak his language? Is that not an African language?’”

Ahmed, a former Victorian Australian of the Year, says African Australians are victims of an enduring “anti-black” corporate culture, which – as in colonial times in Africa – generalises black people as lazy, arrogant and unreliable, and invariably winds up costing them jobs. He points to the starkly differing experiences of white South Africans, whose “connections” have carried them to the very top in major businesses.

It’s a situation Lindsay Tanner believes will only begin to be addressed when black Africans start getting “runs on the board” in corporate Australia. “I remember as a young lawyer, I felt I was surrounded by the children of judges and law firm partners, and all those people knew that world and understood its rhythms, even before they set foot in it,” says Tanner. “If you have only the formal academic learning but have had no access to the informal networks, you’re at a huge disadvantage. The idea of mentoring is supposed to break that down. Once you have a few Somali kids who prove stars at NAB, who are given full-time jobs, the knock-on effects should be significant.”

It’s an open secret that hundreds of African migrants have done bridging degrees or supplementary exams to bring their qualifications up to Australian-scratch – only to return to the dole queue or the taxi rank. “Politicians and academics across the country must be asking themselves: where are all these Africans that our unis and TAFEs have prepared?” says Abdulkadir Shire. “If fifty qualified people are applying continuously for two years and not one of them gets an interview, either their applications weren’t received or the employers are looking for another kind of people. There’s no proof it’s racism. It’s such a damaging word; but the reality is that employers are looking for something else.”

There’s nothing like the R-word to get researchers scribbling, politicians ducking and employers vigorously defending themselves. Yet numerous studies have conclusively shown that jobseekers with foreign names get nowhere near the same “go” as other applicants. A 2009 study by the Australian National University, which sent out 4000 fictitious job applications, showed that candidates with Chinese or Middle Eastern (Arabic) names had to send out 68 per cent more resumés than those with Anglo-Saxon names to get a response from a potential employer.

Farida Fozdar, who has spent much of the past decade studying discrimination against migrants at Murdoch University’s Centre for Social and Community Research, says the situation is far worse for African Muslims, who suffer the “double jeopardy” of being both racially and religiously different. Fozdar told me about meeting experienced African doctors who were literally begging hospitals to take them on as unpaid interns. “For these professional, accomplished people, there are huge issues of self-esteem and dignity among their families and their children – and they’re not even being allowed to do volunteer work!”

Fozdar’s latest study made much the same recommendations as those in last year’s Human Rights Commission report: a more streamlined system for approving overseas qualifications; subsidised bridging courses to bring them up to speed; greater jobseeking services, mentoring and work experience opportunities for skilled migrants; and more equitable employment legislation. Both reports also emphasised the need for specific education for employers on the benefits –for both workplaces and bottom lines – of employing senior staff from different cultural backgrounds.

National Australia Bank’s deputy CEO, Michael Ullmer, is one executive who no longer needs persuading. After attending a lecture by Lindsay Tanner at Melbourne’s State Library in July 2008 – a moment credited with waking up corporate Australia to the issues faced by professional Africans – Ullmer made it his mission to do something to help. The result was a “workplace development program” that has provided paid six-month placements to twenty-three Africans with business and accounting degrees – with another fourteen joining the company in March.

Ullmer says the program has been a boon for NAB: his department heads are reporting “overwhelmingly positive” responses to their new African staffers, who bring different approaches and problem-solving skills, not to mention a potentially profitable connection with their own communities. Of the twenty-three candidates to date, sixteen have stayed on at the bank after their placements. “There are many things that we as an organisation can learn from their commitment and drive,” says Ullmer. “We have a responsibility… to address this issue of underemployment among African Australians, rather than pretending it doesn’t exist.”

Former IBM Managing Director Glen Boreham also helped to initiate a workplace training scheme that provided paid placements to three African graduates in 2009 – one of whom stayed with the organisation. But other business leaders have been slower to rally to Tanner’s call. The Corporate Leaders Network, which links socially conscious companies with migrant service providers, established its African-Australian Project early in 2009, specifically to help professional Africans into work. But despite some early gains – for example, getting companies to review web recruitment channels that automatically bar those with no Australian experience – convener Leigh Purnell says that in a tough economic climate companies have found it harder to create room for new employees.

“Here in Melbourne, there’s very active CSR [corporate social responsibility] among the big corporates, but there are limits,” says Purnell, a former Australian Industry Group director who also served as an adviser to former immigration minister Chris Evans. “One thing employers cannot compromise on – and we do not want them to compromise on – is the technical requirements of their jobs.” Purnell is putting great store in the Corporate Leaders Network’s third training workshop in May, which will, however, be limited to candidates who have graduated over the past two years

There are, of course, dozens of vital training programs, internships and mentoring schemes, and vocational courses run by the state-funded Adult Multicultural Education Services, charitable organisations like Jesuit Social Services and the Brotherhood of St Laurence, and numerous conscientious city councils, many of which are making a real difference to the lives – and work chances – of thousands of “new Australians.” But like the research and funding on which they are predicated, most of these schemes focus on younger migrants or refugee communities in regional areas.

Meanwhile, the Horn-Afrik project, the Corporate Leaders Network’s African-Australian Project and a few other pioneering initiatives continue to campaign for more formal mentoring, internships and training opportunities for African graduates and professionals. Omar Farah’s project is now also targeting professional African women – traditionally even further down the ladder than their male counterparts – and reports more African women undertaking “care” qualifications such as nursing and aged care, and an encouraging number starting up their own childcare businesses.

But clearly much remains to be done. “Australians are a very welcoming, open society when you take your wife to maternity or your child to school, but Somalis coming here still cannot compete on an equal footing in the job market,” says Ahmed Warsame, a Somali community leader who lectures part-time at Victoria University. “There’s an enduring lack of policies and formal assistance for new arrivals, particularly for young people and women.”

Abdirahim Abikar, an experienced social scientist and RMIT Masters graduate, has been forced to return to Africa nearly every one of the twenty-three years he has lived in Melbourne. He called me from Juba, Southern Sudan, where he’s currently providing training to the world’s newest human rights commission. “I consider myself Australian, but there are just no chances for me there. I have five kids, aged between six and seventeen; you can imagine how badly they need me. But a man needs to support his family. It has been awful to leave them behind so often.”

Abikar says that however many times he returns to Australia, he always feels like a refugee, a misfit; more so, when he picks up a newspaper. “The media consistently portrays us Africans as poor, illiterate and unprofessional, and basically suggests that every Somali in Australia has links with pirates or terrorists.”

WHEN I read the story of the Australian doctors using a hacksaw and a knife to amputate the legs of a man trapped in the Christchurch earthquake, I was reminded of two doctors I once met in a small hospital in the town of Eldere in southern Somalia. The only doctors for hundreds of miles, these young men were operating each day on everything from broken bones to complex obstetric fistulas, in a bare theatre, with ancient instruments and – all too often – inadequate or out-of-date anaesthetics. Watching them work was inspiring beyond words.

On six visits to Somalia over the past fifteen years, I have been struck time and again by the courage, resourcefulness and staggering dedication of the professionals working there. As well as doctors undertaking near-miraculous operations, I met teachers instructing large groups of pupils under trees without a single pen, and journalists writing reports on corruption they knew could get them assassinated. Fearless and single-minded to a fault, these were some of the biggest heroes I will ever meet.

Yet bring them to Australia, and the courage and commitment of people like this slowly but surely die: eroded by year after year of rejection, discouragement and official silence. It’s little wonder the older professionals here – many once proud captains of their industries – wind up sliding into an uneasy retirement, “fitting in” as interpreters or drivers, and trying not to look back at what might have been, had they not given up their old lives for their children. •

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ONE of the more surprising newspaper stories of recent times was Peter Martin’s article of 15 November, OECD Takes Aim at Labor Policies, which reported that the latest OECD Economic Survey of Australia had declared that Australia’s unemployment benefits are too low. I can’t recall the OECD ever before saying that a country’s unemployment benefits weren’t generous enough – and I worked there for eight years.

According to the OECD, the current level of the Newstart Allowance has “raised concerns about its adequacy” as an income-support payment. “Unlike most OECD countries,” says the report, “Australia provides a flat (non-earnings related) means-tested allowance to meet social risks such as unemployment, which may be paid for an unlimited period... The resulting net replacement rate is below the OECD average for the initial stage of unemployment.” In fact, for single people on the average wage losing their job, Australian benefits are about the lowest in the OECD.

Currently, single unemployed adults receive about $470 per fortnight, or $33.55 per day. If they’re renting privately, they’re entitled to up to $115 per fortnight in rent assistance, but to get that amount their rent has to be more than $256 per fortnight, leaving them with just $23.50 per day for everything else; and that assumes you can find somewhere to rent for $256 a fortnight. Earlier this year the NSW government’s Rent and Sales Report found that in early 2010 the cheapest one-bedroom homes in Sydney’s outer ring were in Wyong and Gosford and cost “just” $170 a week. If you were on Newstart and paying that rent you would have just $17.50 a day left over for your food, clothing, transport and other bills.

In September 2009, the federal government increased the single rate of age pension by more than $30 per week – one of the largest pension increases in Australian history. The decision was based on the recommendations of the Harmer Review, which argued that “the relativity of the rate of pension for single people living by themselves to that of couples is too low… [and] there is strong evidence that many pensioners in private rental housing face particularly high costs and have poor outcomes.”

In making its recommendations the Harmer Review cited research by Peter Saunders and Melissa Wong of the Social Policy Research Centre, or SPRC, who looked at the relative well-being of pensioners using measures of deprivation and social exclusion to complement measures of cash incomes. But Harmer was not asked to look at the adequacy of benefits for the unemployed. Earlier research at the SPRC found that the unemployed were even more likely than age pensioners to face deprivation and exclusion and have difficulties managing on their incomes.

The Henry Review of the tax system also pointed out that Australia could benefit from a more principles-based approach to setting payment levels. “Establishing adequacy benchmarks for transfer payments not considered in the Pension Review would make the system more robust, particularly if the benchmarks were preserved through a common but sustainable indexation arrangement.” This “would mean an increase to base rates for single income support recipients” on Newstart. The review also recommended that the maximum rate of rent assistance should be increased and the rent maximum should be indexed by movements in national rents.

So, both the OECD and the official inquiry into Australia’s tax and benefit system think that unemployment benefits are too low. Part of this concern is actually about incentives, particularly those that arise from the gap between Newstart and the more generous Disability Support Pension. “The large gap between the benefits in the current system can reduce incentives to work,” the OECD argues. “The unemployed may have an incentive to apply for the Disability Support Pension (DSP), which has a higher risk of long-term welfare dependency... the majority of those leaving DSP do so either because they took up Age Pension or died. At the same time, more than a third of those entering DSP in 2008 had previously had Newstart Allowances.”

The 2009 increases in pensions widened the gap between payments for the unemployed and payments for lone parents with children eight years and over, for people with disabilities and for carers, to the point where the Newstart shortfall is nearly $250 per fortnight. A lone parent who moves from Parenting Payment to Newstart when his or her youngest child turns eight can lose up to $100 each fortnight. As the system is currently configured these gaps will grow over time.

The 2010 Intergenerational Report helps us gauge the scale of the future problem. Under current indexation policies, age, carers and disability pensions are indexed to wages, while most other payments for people of working age and families are indexed to prices. If continued, these provisions will produce a remarkable change in levels of support: pensions would rise by 4 per cent a year on average while benefits and allowances would rise by 2.6 per cent a year. The result – if the indexation provisions actually continued for forty years – would be that in 2050 a single unemployed person would be receiving a payment little more than 11 per cent of the average male wage, compared to about 20 per cent now.

The gap between pensions and allowances would widen enormously, and an unemployed person would be receiving a payment that was less than 40 per cent of the amount received by a disability pensioner (not including the extra concessions and bonuses received by pensioners). Relative poverty among working age allowance recipients would increase significantly.

It is certainly true that the best way to help the unemployed is to get them into jobs. Australia has been very fortunate in having one of the lowest increases in unemployment of any OECD country since 2008, but we shouldn’t overlook the fact that unemployment has still risen significantly. In June 2008 the number of people receiving Newstart Allowance was just under 430,000, its lowest level since the 1980s; this rose to 602,000 in February 2010 and has come down to 557,000 in October this year (the most recent available figure). The number of people on Newstart for twelve months or more rose from 250,000 in late 2008 to around 340,000 in recent months, although this also appears to be now coming down.

Would raising benefits to a more adequate level keep the unemployed out of jobs or even cause low paid workers to give up jobs? Since 1996 the level of Newstart for a single person has fallen from around 54 per cent to 45 per cent of the after-tax minimum wage. If it were still 54 per cent of the net minimum wage, then benefits would be around 19 per cent higher. It is difficult to see that going back to the 1996 relativities between Newstart and the minimum wage would pose serious disincentives to work.

This problem is not going to go away. Current policies are simply going to make the problem more difficult to deal with if decisions are postponed. It is worthwhile remembering that one of the first initiatives of the Hawke government was to increase the rate of unemployment benefits, recognising that lack of consistent indexation had made these payments inadequate. It’s time the current government recognised that unemployment payments need to be increased. •

The post Why unemployment benefits need to be increased appeared first on Inside Story.

DESPITE winning at four successive polls, the Howard government’s electoral performance has attracted less attention from political scientists, and fewer satisfactory explanations, than we might expect. The consequence – as we can see in the current election campaign – is that speculative accounts of why the Coalition won those elections have continued to dominate discussion of Australian electoral politics. “Howard’s battlers” are still at war, “big pictures” are out of fashion again, and both main parties are chasing “aspirational voters.”

In 2007 we set out to fill what we saw as a gap in the political science literature by looking in detail at the issues and forces that influenced the results of the elections held between 1993 (Labor’s last victory before John Howard became prime minister) and 2004 (the Howard government’s last victory). Our source for data was the Australian Election Study, or AES, a detailed questionnaire completed by at least 1700 voters after each of these elections. Our detailed findings were published in the Australian Journal of Political Science.

The AES is an indispensable source for the analysis of Australian electoral behaviour, but it is also a frustrating one. Accounts of the Coalition’s success, in which Howard’s appeal to the “battlers” looms large or in which his attack on “political correctness” is central, can be interrogated only in part through the AES surveys, and then only with difficulty. To assess what might be called the foundation myth of the Howard years, that Labor was thrown out of office because Paul Keating’s “big picture” ignored “the battlers” and their concerns, we need to consider policy issues – a republic, reconciliation with Indigenous Australians and stronger relations with Asia – that the AES ignored almost entirely. And the more recent wisdom that the government’s hold on power hinged on Howard’s appeal to “aspirational” voters also raises questions that the AES is ill-designed to answer. (More details about the AES are given at the end of this article.)

Within these constraints, our article used the AES to address three questions either not previously asked or not persuasively answered. First, to what extent did the Coalition’s victories depend if not on Howard’s appeal to “the battlers” then on his appeal to the “blue-collar” vote? Second, what demographic variables other than occupation helped drive voting behaviour after Howard came to office and what were the most marked changes in the importance of these variables from the Hawke and Keating years? Third, to what extent did the political issues that the AES touches on – relations with Asia, taxation, interest rates, privatisation, health, education, terrorism and the war in Iraq – help explain changes in major party support, and to what extent did economic circumstances account for the Coalition’s success?

We found that although “blue-collar” respondents did shift to the Coalition in 1996, they were hardly a loyal band; at least in terms of their first preferences, they deserted in large numbers in 1998 and didn’t return to the Coalition in anything like the same numbers until 2004. Other demographic factors made a difference as well. Comparing the Labor years for which there are AES data (1987–93) with the Howard years, we see a shift towards the Coalition among respondents aged over 60 years, among respondents aged 30–39 years (in comparison with those under 30 years of age), and among respondents who were Catholic (compared with respondents who were non-believers). Over the same period there was a shift towards Labor among respondents from non-English speaking backgrounds (compared with the Australian-born).

We also identified the issues that mattered: defence, terrorism, taxation (as distinct from the goods and services tax) and interest rates – all of which at one time or another worked for the Coalition – and health, education, the environment, and privatisation – all of which at one time or another worked for Labor. In addition, the government of the day benefited from the support of respondents who sensed either that the economy had improved over the previous twelve months or that it would improve over the next twelve months; whereas the opposition of the day benefited from respondents who regarded unemployment as an extremely important issue, thought the economy likely to go backwards over the next twelve months or thought their household’s finances had gone backwards over the previous twelve months.

At the same time, our analysis casts doubt on a number of the factors often considered important to Howard’s success. In 1996, it was not Keating’s arrogance, his emphasis on Asia or the importance of immigration that helped the Coalition across the line. Nor were those respondents who voted for the Coalition especially worried about interest rates. In 2001, it was immigration rather than refugees that mattered, and terrorism rather than defence. And in 2004, respondents who attached great weight to education were not especially likely to have voted for the Coalition, despite Labor’s caning over its promise to redistribute private school funds. Nor was Labor’s promise to introduce Medicare Gold as damaging to its electoral appeal on health as is commonly supposed. And the Iraq war, far from being neutralised as an issue by Latham’s pledge to bring the troops home by Christmas, appears to have cost the Coalition votes.

Howard’s battlers?

One of the most remarkable things about changes in party support between the Hawke–Keating years and the 2004 election were the changes at both ends of the occupational spectrum, with the Coalition losing support among managers (down from 67 per cent in 1987–93 to 61 per cent in 1996–2004) and gaining the support of blue-collar workers (up from 34 per cent to 39 per cent), deserting Labor not only for the Coalition but for minor parties. But Labor gained virtually none of the support the Coalition lost from the professional–managerial respondents (its support rose among managers but declined among professionals), its white-collar support declined (from 41 per cent to 38 per cent) and its support among respondents in blue-collar jobs fell from 55 per cent to 45 per cent. Most of the Coalition’s losses showed up not as Labor gains but as gains for the minor parties – the Australian Democrats, One Nation and the Greens. Most of Labor’s losses, too, showed up as gains for other parties; but the Coalition also got a boost, especially from Labor’s blue-collar base.

Although both sides lost support in their demographic heartlands, the Coalition’s losses were much smaller than Labor’s. And although the Coalition registered important gains that more than compensated for its losses, Labor made no compensating gains – not in its area of traditional strength, blue-collar workers; not among white-collar voters, wooed so effectively in the Whitlam years; not even among the professional middle class, to which Labor is said to have pitched its policies with disregard to its blue-collar base. Among all these groups Labor’s support went backwards over the period.

The defections from both heartlands decreased the distinctiveness of each side’s electoral support. In the period 1987–1993, the gap between the level of support for the Coalition parties among managerial respondents (67 per cent) and blue-collar respondents (34 per cent) was 33 percentage points; in 1996–2004, this gap (22 points) dropped by one-third. In 1987–1993, the gap between the level of support for Labor among managerial respondents (25 per cent) and blue-collar respondents (55 per cent) was 30 points; in 1996–2004, this gap (19 points) was almost halved. For both Labor and the Coalition the gradient in support, from one end of the occupational scale to the other, became less steep under Howard than it was under Keating or Hawke.

When exactly did these changes occur? To answer this question we need to look at the data election by election. In the case of blue-collar workers, we need to look at trades people in particular. And we also need to look at the difference between blue-collar workers who were self-employed and blue-collar workers who were not.

Managers: Although support for the Coalition among managers declined in the Howard years, this decline dated not from 1996 but from 1990. In 1987, 71 per cent of respondents who were managers said they had voted for either the Liberal or National Party; in 1990 through to 1996, the Coalition’s vote among managers hovered at around two-thirds (64 – 67 per cent); subsequently it dropped to 60 per cent or 61 per cent. Labor, unlike the minor parties, gained little from this slide.

Professionals: Support for the Coalition among professionals did not decline – but it did fluctuate. It dipped in 1990 (41 per cent) when Labor, too, lost votes to the Democrats. The Coalition lost further ground in 1993 (39 per cent) when Labor recovered. But it gained – as did Labor – in 1996 (42 per cent). In 1998, when support for the Coalition (43 per cent) held firm, Labor’s support fell by 8 points, largely owing to the Greens (up 3 points) and One Nation (6 points). In 2001, the election that followed not only the attack on the United States but also the turning back of the Tampa, support for the Coalition among professionals declined by 4 percentage points – notwithstanding that the Coalition actually increased its share of the nationwide vote by 3.5 per cent – whereas support for the Greens jumped from 4 per cent to 11 per cent. In 2004, when support for One Nation and the Democrats both collapsed, the Coalition’s vote among professionals rose by 3 points and Labor’s by 5 points.

White-collar workers: If there was a swing to the Coalition in 1996 among white-collar respondents, it was barely noticeable when almost half (48 per cent compared to 47 per cent in 1993) said they had voted either Liberal or National. But among white-collar respondents the 1998 election and the rise of One Nation saw a big swing away from the Coalition. The only swing towards the Coalition of any size – a swing that lifted its share of the vote from 40 per cent (1998) to 49 per cent – came in 2001. This returned it to roughly where it had been in 1996.

For Labor, on the other hand, 2001 marked a new low with white-collar respondents shifting to the Democrats and the Greens; in 1998, 41 per cent of white-collar respondents said they had voted Labor, but in 2001 no more than 36 per cent said they had done so. Worse, in 2004, when the combined support for the Democrats and Greens returned to its 1998 level, support for Labor (36 per cent) remained unchanged.

Blue-collar workers: The jump in the Coalition’s support among blue-collar respondents dates precisely from 1996. In the Liberal Party’s 1996 exit poll, conducted across the “52 most marginal seats,” 47.5 per cent of blue-collar respondents voted for the Coalition; compared with a vote of 43 per cent in 1993, this represented a gain of almost 5 percentage points.

The AES data, derived from respondents in safe seats as well as those in the marginal seats, tell a story that is less dramatic in terms of the size of the Coalition’s blue-collar vote but more dramatic in terms of the size of the blue-collar swing. In 1996, 44 per cent of blue-collar respondents said they had voted for the Coalition; this compares with only 33 per cent in 1993. For the first time, more blue-collar workers said they had voted for the Coalition than said they had voted for Labor.

By 2004, the days when Labor could command the majority of the blue-collar vote, or outpoll the Coalition by nearly two votes to one, had receded into an increasingly distant past. Not since 1993, after John Hewson threatened to introduce a GST and dismantle Medicare, had Labor won an absolute majority of blue-collar respondents. In 1990, as it chased the environmental vote, its support among blue-collar respondents dropped to less than half (48 per cent). In 1996, its support fell even lower (41 per cent).

In 1998, contrary to expectations that Hanson would split the Labor vote, more blue-collar respondents switched to Labor than moved away; Labor’s share of blue-collar respondents rose to 46 per cent. It was the Coalition’s share, not Labor’s, that Hanson hit; Liberal–National Party support fell to just over one-third (35 per cent) and remained at that level in 2001, notwithstanding that One Nation’s electoral support had passed its peak. Not until 2004 did the Coalition’s vote recover (up by 6 percentage points). Conversely, Labor’s share of blue-collar respondents declined – its loss of support among blue-collar respondents apparently bigger than its loss of support in the electorate as a whole. For the first time since 1996, blue-collar respondents were divided almost evenly between the Coalition (41 per cent) and Labor (44 per cent).

What can we say about those blue-collar respondents who worked in a trade? Tradespeople did swing to the Coalition in 2001, and in 2004 were evenly split (42:42). Compared to 1996, when it turned a 36:52 deficit into a 46:40 lead, the Coalition’s grip appears to have weakened. This is largely because of the damage inflicted in 1998 by Hanson, when the Coalition’s support, and Labor’s, split 34:45. And although 1996 is an election from which Labor found it difficult to recover, its losses were not without precedent; in 1990, tradespeople were also evenly split, 40:38.

Increasingly, those who work in blue-collar jobs are self-employed. Among blue-collar respondents, the self-employed averaged 19 per cent between 1987 and 1993. In 2004, among AES respondents, it had grown to 25 per cent.

Did self-employment make a difference? In 1996 the swing to Howard appears to have been more marked among blue-collar respondents who were self-employed (a gain of 11 percentage points) than among those who were not self-employed (a gain of 7 points); nonetheless, the shift from Labor was no more marked among the self-employed (a fall of 17 points) than it was among those who were not self-employed (a loss of 15 points). In 1998, the shift away from the Coalition among blue-collar respondents – partly to Labor, partly to Hanson – was almost entirely due to the massive desertion of those who were self-employed (down by 26 points compared to a drop of just 2 points among those who were not self-employed).

In 2004, again, it was blue-collar respondents who were self-employed who swelled the Coalition’s ranks; support for the Coalition among these respondents jumped by 19 points whereas among those not self-employed it rose by just 2 points. Nonetheless, in 2004 support for the Coalition among blue-collar respondents who were self-employed (59 per cent) was substantially lower than it had been in 1996 (69 per cent); support for Labor was much higher (32 per cent compared with 19 per cent). Among blue-collar workers not self-employed, the Coalition’s share of the vote in 2004 (36 per cent) was about the same as it had been in 1996 (35 per cent).

In short, if Keating lost a large swag of the blue-collar self-employed to Howard in 1996, Howard had considerable difficulty holding them; in 1998 and 2001, he lost all of them – and a lot more besides. Over 1996–2004 Howard was much more successful holding on to blue-collar workers who were not self-employed.

Victories compared: 1987–93 to 1996–2004

To understand which of the many characteristics associated with employment actually shaped the choices of our respondents, we need to move from bivariate to multivariate analysis. This allows us to plug in a range of other variables: characteristics of the respondents, like their age, gender, place of birth and religion; and their position on a whole raft of issues.

We started by aggregating the AES data from 1987 to 1993, Labor victories, and from 1996 to 2004, Coalition wins. We then ran two multinomial logit models to see if there are any notable trends in the socio-structural basis of support for the parties. In the first set of results the independent variables were gender, age, occupation, private sector employment, and trade union membership, place of birth, religion and marital status. (Full tables are available in the AJPS article).

In the pre-Howard period the odds of a male (compared with a woman) voting for the Coalition rather than for Labor was 0.86, whereas in the Howard years the odds were 0.93. If the odds had shifted to 1.00 this would have meant that men were just as likely as women, other things being equal, to have voted for the Howard government. The modelling suggests that although the Coalition under Howard may have improved its performance among men relative to its performance among women in 1996, as Andrew Robb observed, the improvement is not statistically significant net of other factors.

To find the categories in which the Coalition clearly improved its position or to see where it had slipped we had to look elsewhere. First, to the category of respondents aged 30–39 years, in which the Coalition reduced its disadvantage (compared with those aged 18–29 years), and to the category of respondents aged 60-plus, in which it increased its advantage substantially. If the gains among the 30 to 39-year-old group are surprising, the gains among older voters are not; a study of the Howard decade, undertaken by the National Centre for Social and Economic Modelling, showed “the nation’s most favoured voters” were “part-pensioners with private incomes of $250 to $500 a week.” Second, we looked to Catholics (compared to non-believers), for whom the Coalition reduced its disadvantage as well. Third, we looked at the category comprising those voters with lower levels of formal education, in which the Coalition also reduced its earlier disadvantage.

Although the prime minister also targeted “low- and middle-income families,” the odds of low-income earners or middle-income earners (compared to high-income earners) voting for the Coalition, which was never high, were no higher in 2004 than they had been in 1993. As for the blue-collar vote, there was no statistically significant change between the two periods. But if the Coalition improved its position, it lost ground as well. Its slight disadvantage in the pre-Howard years among migrants with non-English-speaking-background (compared to the Australian-born) grew with Howard in office. Multiculturalism was something regarded with suspicion, if not hostility, by the Howard government.

To see what factors drove the vote when Howard came to office in 1996, what factors drove the vote in 1993, and what factors have driven the vote thereafter, we modelled a wider range of variables and looked at each election in turn. (Appendix Table A2 in the AJPS article provides more details.)

Our analysis drew on four broad categories of independent variables: variables that touch on campaign issues; variables that measure respondents’ household finances – looking back twelve months and forward twelve months – and the way they thought the broader economy had changed over the past twelve months and might be expected to change in the coming twelve months; a variable designed to assess whether respondents changed their vote from the previous election; and a variable to measure whether they cared a great deal about the outcome of the election. For ease of exposition, we present our key findings as changes in the predicted probabilities of voting for each of the parties. For example, for an “average” respondent in 1993 who rated health issues “extremely important,” the predicted probability of voting for the Coalition was 12 percentage points lower than for an “average” respondent who did not regard health issues as “extremely important.” Note that these percentages are changes in the predicted probabilities for the “average” respondent, and not changes in the party’s share of the total vote. Although a particular attitude might have a considerable impact on the predicted probability, the attitude itself might not be widely shared. To help the reader keep this in mind, we also show the proportion of respondents who shared that particular attitude.

1993: More than just the GST

It is often assumed that the GST rescued Labor in 1993. But there is a good deal more to the story than this. For the average respondent for whom the GST was “extremely important” – and more than half the respondents fell into this category – the predicted probability of voting Labor rose by 14 percentage points compared to the average respondent for whom the GST was not extremely important. But this was not the only issue that mattered. For the average respondent for whom health was “extremely important” – and two-thirds of the respondents fell into this category – the predicted probability of voting Labor rose by 11 per cent; for the average respondent for whom education was “extremely important” – almost half the respondents – the predicted probability of voting Labor rose by 11 per cent; and for the average respondent for whom the environment was “extremely important” –more than a third of the respondents – the predicted probability of voting Labor rose by 9 percentage points (although minor parties benefited equally at the Coalition’s expense).

As one might expect, adverse economic impacts worked in the opposition’s favour. Thus, the average respondent for whom unemployment was “extremely important” – and two-thirds of the sample fitted this category – was 11 percentage points more likely to have voted for the Coalition. And the average respondent who thought “the general economic situation in Australia as a whole” was likely to be worse “in twelve months’ time” – two respondents out of five – was more likely, by 44 percentage points, to have voted for the Coalition. There were other, smaller, impacts as well.

If the Coalition picked up some of the economic losers in 1993, Labor benefited from some of the economic winners. For the average respondent who thought things would be better in twelve months’ time (and they constituted nearly a third of the sample), the probability of voting Labor rose by 56 percentage points. And the average respondent who thought the “general economic situation” was better than it had been twelve months ago was also more likely (by 16 points) to have voted Labor; no fewer than 63 per cent shared this view. But interest rates, mentioned by half the respondents as “extremely important,” did not shift votes either way.

1996: Taxes, defence and whether the election mattered

Even in defeat, Labor still held the advantage on health and, more narrowly, on the environment (with most of the Coalition losses benefiting the minor parties rather than going directly to Labor). And, despite the best efforts of the Coalition to neutralise the issue, Labor also enjoyed a modest advantage on the issue of privatisation. But Labor no longer held a statistically significant advantage on education. The Coalition held on to its advantage on unemployment, was preferred by those (two-in-five) for whom taxation was “extremely important” (the GST item was dropped for this election so we can’t say whether its impact lingered), and enjoyed a clear advantage on defence (rated “extremely important” by one-quarter of the sample). Again, interest rates counted for nought in influencing the vote, as did industrial relations, although both were rated “extremely important” by nearly half of those interviewed. Immigration and links with Asia, each rated “extremely important” by about a quarter of the sample, also left no mark.

On the health of the economy as a whole, and on the health of household budgets in particular, the pattern of advantage and disadvantage was much as it had been in 1993. But although Labor increased its advantage (38 compared to 16 points) among those who thought the “general economic situation” better than it had been twelve months ago, the proportion who felt the economic situation was better than it had been twelve months ago was lower (46 per cent, down from 63 per cent); and the proportion who felt the “financial situation” of their household was better than it had been twelve months ago was also lower (35 per cent, down from 44 per cent). Although the Coalition benefited from those who thought “the general economic situation in Australia” would be better in twelve months’ time (giving it an advantage over Labor of 44 percentage points among this group), its advantage was not as great as Labor’s in 1993 and the proportion (23 per cent) who shared this view of the economic outlook was not as great as it was in 1993 (30 per cent).

What does stand out (although not shown as predicted probabilities) is the impact of “concern” about the outcome of the poll. For those who “cared a good deal which party won the federal election,” or who voted one way in 2001 and another in 2004, the impacts were large. Among these respondents, the odds of voting for the Coalition over Labor were about 3 to 1. And notwithstanding the view among commentators that Keating’s arrogance was a key factor in the Coalition’s win, this factor shows no statistically significant relationship with the vote.

1998: A referendum on the GST?

If the 1998 election was a “referendum” on the GST, it appears to have ended in a tie; as a vote-shifter it was statistically insignificant. Nor were Labor’s advantage on health and the Coalition’s disadvantage on the environment statistically significant. But education (now “extremely important” to two-thirds of the respondents) remained a Coalition weakness; unemployment, a negative for Labor in 1996, was now a problem for the Coalition; and privatisation remained a Coalition negative as well (although only one-third rated it as “extremely important”). The two issues raised in the AES on which the Coalition enjoyed an advantage were interest rates (for the first time) and, more importantly (because two-thirds rated it “extremely important”), taxation – an issue, unaffected apparently by the GST, on which there had been little change since 1996. Again, industrial relations, immigration and links with Asia left no mark.

The economy was now an advantage to the Coalition in a way that it had not been in 1996 when many more respondents (46 per cent) thought economic conditions had improved in the past twelve months than thought they had gone backwards (18 per cent). In 1998, on the Coalition’s watch, the difference in the proportions who thought the economy had improved and who thought it had deteriorated was small; but the Coalition enjoyed a clear advantage among those who thought things had improved and suffered no statistically significant disadvantage among those who thought things had gone backwards. Again, whereas more respondents after the 1996 election thought the economy would do worse (37 per cent) in the next twelve months rather than better (23 per cent), after the 1998 election more respondents expected it to do better (41 per cent) rather than worse (24 per cent).

Those (20 per cent) who felt their household finances had gone backwards, like those who felt the economy had gone backwards, moved to Labor and the minor parties. More respondents (30 per cent) felt that their household’s finances had improved over the past twelve months, but this did not affect the probability of their voting for the Coalition.

2001: Terror (and immigration), not Tampa

The 2001 election might have been characterised as the “Tampa election” but, on the evidence of the AES, it was not; although half the sample (49 per cent) thought refugees an “extremely important” issue, the probability that those who thought this way had voted for the Coalition was not significantly greater than the probability that they had voted for Labor. What did work for the Coalition was the related issue of immigration; having not worked for the Coalition in 1996 or 1998, the issue of immigration – “We will decide who comes to this country and the circumstances in which they come,” as John Howard put it – increased the predicted probability of voting for the Coalition by 11 percentage points among those respondents (48 per cent) for whom it was “extremely important.” Again, although defence did not work for the Coalition (despite being nominated as “extremely important” by 50 per cent), the related issue of terrorism did; identified as “extremely important” by half (52 per cent) of the respondents, terrorism increased the predicted probability of voting for the Coalition by 18 percentage points, taking support not only from Labor but also from the minor parties. In short, the main issues were not refugees and terrorism but immigration and terrorism. Nonetheless, on neither issue was the Coalition’s advantage as great as many commentators imagined.

On domestic issues, the news for Labor was generally good. It regained the edge on health, retained an even stronger edge on education and on unemployment, and on the GST – despite the limited nature of its proposed “rollback” – it enjoyed a remarkable advantage (26 percentage points) among those (45 per cent of the sample) who rated the issue “extremely important.” On the more general issue of taxation, the Coalition also made no headway. One area in which Labor lacked strength was the environment. And for the third time in succession, industrial relations left no mark.

On the economy and on household finances, the news for the Coalition was much better as, for the most part, rosy assessments outnumbered gloomy ones. Those who thought things had improved in the past twelve months (41 per cent) or would improve in the next twelve months (37 per cent) were more likely to have voted for the Coalition. Those who thought things had got worse in the past twelve months (only 25 per cent) or would get worse in the next twelve months (42 per cent) were more likely to have voted Labor. But the latter was a relatively small group and Labor’s overall advantage on these two measures (7 percentage points) was relatively narrow. Similarly, those who thought their household finances had improved (41 per cent) were more likely to have voted for the Coalition than for Labor. And although those who thought their household finances had gone backwards (21 per cent) were more likely to have voted Labor, their number was only half as great as those who thought their household circumstances had improved.

Nor should we overlook the advantage the Coalition enjoyed among respondents for whom it really mattered which party won. Although the advantage was not as great as it was in 1996, it was significant nonetheless.

2004: Who can you trust?

There seems little doubt that interest rates won the 2004 election for the Coalition. Among respondents who rated interest rates as extremely important (46 per cent of the sample), the probability of voting for the Coalition was 24 percentage points higher than the probability of voting for Labor. Those who thought the economy was better than it had been twelve months earlier favoured the Coalition by a similar margin; but they only accounted for 16 per cent of the sample. Those who thought the country would be better off in twelve months’ time favoured the Coalition by a greater margin, but those who thought the country would be worse off in twelve months counterbalanced them. And, whereas the Coalition gained no advantage from those who thought their household’s position had improved over the past twelve months, it lost votes among those who thought their households had gone backwards.

Interest rates apart, and allowing for the fact that the AES did not ask about forests’ policy, domestic issues appear not to have served the Coalition well. On health, education and the environment – issues rated “extremely important” by upwards of half those interviewed – Labor enjoyed a clear advantage. Labor’s strong showing on health, which was rated “extremely important” by an exceptionally high 75 per cent, was not negated by the controversy generated by its Medicare Gold policy; nor was its lead on education overtaken by its schools’ funding policy. On unemployment, Labor was also ahead. Industrial relations and taxation made no difference either way.

For the Coalition the Iraq war proved as big a liability as any; among those who thought the issue “extremely important” (36 per cent of the sample) the chances of voting for the Coalition declined by 26 percentage points, with the probability of voting for Labor increasing by almost as much. But the Coalition’s losses over the war in Iraq were more than offset by its gains from defence and the issue of terrorism. On defence, which was rated “extremely important” by half (51 per cent), the probability of voting for the Coalition increased by 19 points; on terrorism, which was rated “extremely important” by 49 per cent, the probability of voting for the Coalition also rose by 19 points. And, although no advantage accrued to it through refugees, the issue of immigration again gave the Coalition a boost.

Battlers, Catholics and trade unionists

Contrary to the view that Howard won a new constituency in 1996 and held on to it, more or less, until some time after the 2004 election, our analysis highlights the volatile nature of the Coalition’s gains over this period. In 1998 the Coalition’s vote among blue-collar respondents dropped close to where it had been in 1993 and remained there. Not until 2004 did Howard win most of this constituency back.

If we compare the AES data for the pre-Howard elections (1987–93) with those that cover the elections from 1996 to 2004, we find no trend in blue-collar support for the Coalition net of other demographic factors. What our analysis suggests that the changes in the Coalition’s fortunes during those years had more to do with education than with occupation. Howard built his support not so much among blue-collar workers as among voters with relatively low levels of education. In addition, he extended the Coalition’s advantage among older voters (aged 60-plus years). So the swing to the Coalition may have been less the story of a shift in the labour market than a story about populist right-wing politics mediated by talkback radio – a medium that Howard made his own – and pitched at those with limited education and older voters with a less critical insight into social and political affairs.

What of the change in the “Catholic vote”? One possibility is a re-run of the old story: Catholic “aspiration.” But why aspiration should be particularly marked among Catholics is less obvious now than it was in the heyday of the Democratic Labor Party – and even then it was far from clear that aspirations of a material kind were the key to the shift in the Catholic vote. Another possibility is that the Catholic connection with Labor is partly the product of a church whose teachings on issues like asylum seekers are more liberal than conservative; with falls in church attendance, however, increasing numbers of Catholics have become available to parties of the right. But since the 1996 data suggest that Catholics who attended church most often were more likely to support the Coalition, this seems unlikely. It is more likely that Howard, who prided himself on the number of Catholics in his cabinet, shifted these voters by emphasising conservative values that Catholics endorse.

And what of the trade union vote? Of all the demographic variables, trade union membership is possibly the strongest, and certainly most consistent, predictor of the Labor vote.

Party convergence?

One of the things our research helps revive is the notion that issues matter. In 1996, unemployment, privatisation, the environment and defence made a difference; in 1998, unemployment, privatisation, education and interest rates made a difference; in 2001, unemployment, health and Medicare, and “the war on terror” made a difference; and in 2004, unemployment, interest rates, defence, “the war on terror” and the Iraq war made a difference. This is a formidable list. That some issues (defence, terrorism and interest rates) have worked in the Coalition’s favour whereas others (health, education, privatisation and the environment) have benefited Labor lends weight to scepticism about claims that we are living through an era of party “convergence.”

Judgements that the state of the economy had improved in the past twelve months were invariably more powerful influences on the vote than judgements that household finances had improved in the past twelve months. But judgements that household finances had gone backwards in the past twelve months were more powerful in 1998, 2001 and 2004, than judgements that the country had gone backwards in the past twelve months; only in 1993 and 1996 were these relative weights reversed.

Although our conclusion does not necessarily confound the notion that voters are overwhelmingly egocentric (sociotropic judgements may be self-centred), it does confound the notion that it is simply their “pocketbooks” that govern how people vote.

Finally, we note that in 1996 those respondents who cared “a good deal” which party won helped bring to an end Labor’s 13 years in office and, in 2004, they helped repel Labor’s third attempt to win it back. What is interesting here is that the basis for caring which party won apparently lay not in any commitment to the notion that a change of government was a good thing in itself; rather, it seemed to spring from the notion that which of the parties was in office actually mattered. If this is so, it is another blow to the fashionable notion that the parties are becoming increasingly indistinct. It is also a blow to the notion that contemporary elections are simply about those voters who, but for compulsory voting, wouldn’t be bothered to vote. •

A note on the Australian Election Study: All of the surveys are carried out after the respective elections. Liberal voters are slightly over-represented (although we correct for this by weighting the data by electoral returns). Some of the items are less than satisfactory at measuring key social issues; respondents, for example, are asked about “education” rather than “educational standards,” “educational costs” or “educational choice.” There are inconsistencies: questions on defence, but not in 1998; about interest rates, but not in 2001; and on mortgage repayments, but only in 1996. And for none of the elections are there data on the importance respondents attached to Aboriginal issues, a republic or any aspect of family policy.

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