Inside Story

Kidding ourselves about the budget

One big, vital issue was missing from the Jobs and Skills Summit

Tim Colebatch 6 September 2022 2983 words

Risk-averse: prime minister Anthony Albanese at the Jobs and Skills Summit at Parliament House last Thursday. Lukas Coch/AAP Image

The Jobs and Skills Summit fulfilled its sponsor’s goals. Yet for all its thirty-six “outcomes,” and even more topics singled out for further discussion, the transformation it offers Australia is marginal.

It was a success according to its intentions. But that won’t take us very far. Its directors managed to evade almost completely an issue that is crucial to how Australia is to tackle the many, deep social problems spelt out by speakers on the floor of the Great Hall of Parliament House. I’ll come to that shortly.

The summit was intended to show Australians that our political climate has changed with the new government — and it did. The participants, speakers and moderators were mostly female. There was an abundant sprinkling of young faces, of non-white faces, of foreign accents. It looked and sounded like Australia.

The vibe was overwhelmingly positive. Political differences were set aside (except by the absent Peter Dutton). Everyone was given a chance to speak at some point, and most were worth listening to. Their contributions were mainly constructive.

The PM was his avuncular self, the friendly, trustworthy Uncle Albo, heir to the good Labor leaders of long ago. He urged the summit: “We have not gathered here to dig deeper trenches on the same old battlefield… Australians have conflict fatigue. They want politics to operate differently.” The contrast between his positivity and Dutton’s sniping showed why Australians, according to Newspoll, prefer him by a 61–22 margin.

This summit was a stage production. The cast spoke when they were meant to, and not otherwise. I didn’t see any debate on day one, though ANU vice-chancellor Brian Schmidt started some when he took the chair on day two. Mostly, if anyone wanted to disagree with what was being said, tough luck: they had no opportunity to do so. The “consensus” Anthony Albanese praised was more staged than real.

The summit was intended to produce a set of policy outcomes — and in a sense, it did. Soon after it ended, the government published a fourteen-page document listing what Treasurer Jim Chalmers described as thirty-six “concrete steps [it] intends to take… as an outcome of this… summit” plus a similar number of priorities for future discussion. Everyone got something to take back to their constituencies.

Seeing the speed with which the document appeared at the end of the summit, a cynic might wonder if, rather than responding to what it heard on the floor, the government took these decisions well before the summit, but held back the announcements to make it look like they came from the floor.

The summit was intended to highlight the importance — economic, social and political — of getting more women into work, into decision-making and into higher-level roles in the economy. And it did. Its three main policy themes were: how to fix the skills shortages in Australia’s workforce; how to change wage-fixing rules so that workers get a bigger share of the cake; and how to lift participation in the workforce. In the presentations, women’s work was central to all three.

Grattan Institute chief executive Danielle Wood sounded the bell in her opening keynote speech. Australia has one of the most gender-segregated workforces in the OECD, she noted, and market realities are now in sync with fairness in dictating that we tackle the underpayment of female-dominated caring occupations.

She cited an example: childcare workers are paid as little as $22 an hour, less than they could earn washing dishes at McDonald’s. No wonder we are perpetually short of them. Every year, Australia needs more than 33,000 more aged care workers, but they are grossly underpaid and overworked, so a huge turnover means a constant search for workers.

We can’t put off this issue anymore, and Labor’s leaders clearly recognise that. Treasury’s paper for the summit estimated that a quarter of Australia’s gender pay gap comes from low pay in the female-dominated caring and education professions. The Fair Work Commission is now hearing a case in which unions are seeking a 25 per cent pay rise for aged care workers. The government has promised to pick up the tab. That is where the action is.

But the obvious stage management of the summit should not obscure its genuine achievement. For two days, leaders of business, unions, community groups and federal, state and territory governments focused on contributing their knowledge, identifying the problems, finding common ground and scoping out solutions. They didn’t solve Australia’s problems, but they made progress on some fronts, and established good working relationships for future dialogue.

Yet the progress they made was marginal to the key issues facing Australia. Getting consensus meant the organisers could not allow the conference to tackle issues where consensus was impossible. Danielle Wood and fellow economist Ross Garnaut, the dinner speaker, certainly touched on some of them, but they were not targeted in any session.

One of them is crucial to almost every issue the summit addressed. It is tax.

The federal government is running deficits of $75 billion or more a year. While claimants were putting urgent cases to the summit for more spending in this area and that, Labor still insists on delivering an already-legislated tax cut, mainly for the rich, that will reduce tax revenues by 3 to 4 per cent. Where is it going to find the money to solve the problems the summit presented to it?

Garnaut pointed to the elephant in the room. “We have to stop kidding ourselves about the budget,” he said. “We have large deficits when our high terms of trade should be driving surpluses. Interest rates are rising on the eye-watering Commonwealth debt.

“We talk about the most difficult geo-strategic environment since the 1940s requiring much higher defence expenditure, but not about higher taxes to pay for it. We say we are underproviding for care and underpaying nurses, and underproviding for education and failing to adequately reward our teachers…

“[Yet] in the face of these immense budget challenges, total federal and state taxation revenue as a share of GDP is 5.7 percentage points lower than the developed country average.”

To put it another way, our governments every year raise roughly $120 billion less than they would if our tax rates were at the Western average. With that money, we could tackle every issue raised at the summit. The government, if it chose, could finance 25 per cent pay rises for aged care and childcare workers, raise the dole to $70 a day, restore the funding the Liberals took from universities, invest in research and new technology, pay the states 50 per cent of hospital costs, give state schools their fair share of funding, etc., etc. — and close the deficit.

There are many good ways to raise revenue. Australia has an abundance of tax loopholes allowing companies and individuals to avoid tax: negative gearing is a classic example, but as the International Monetary Fund once suggested, Australia could apply the same principle to business, and stop firms deducting interest bills from their tax.

In the June quarter, the Australian Bureau of Statistics tells us, the total wage bill for Australia’s millions of corporate employees was $164 billion, while its mining companies made a gross operating profit of $81 billion. In just three months! If any country ever had cause to levy a tax on super profits it is Australia, now. Jim Chalmers needs to make this a centrepiece of his October budget.

But no one in the sessions I heard mentioned tax in their speeches. Like all those who argue for more spending on worthy causes, they urged more spending without a word on how the government should find the money to pay for it. Tax is the issue we don’t talk about. The summit would have had more cutting edge if some delegates had dared do so.

There’s been little argument over the summit “outcomes” because they are mostly agreements on principles, aspirations, processes or short-term supports to be applied while longer-term outcomes are negotiated.

They are modest: first steps, not solutions. Maybe they needed to be to get tripartite agreement between government, business and unions. And having tripartite agreement on sensible first steps in the right direction gives the government more freedom to plan bolder steps to solve the problems.

One of the summit’s big moves to tackle the skills shortage, for example, was to increase the permanent migration target for 2022–23 from 160,000 a year to 195,000. Almost all that increase will comprise skilled workers and their families, mostly sponsored by state governments (who are primarily chasing health workers) and employers in the regions.

No one objected to that. Nor should they, because if the target follows current patterns, it will make little difference. In recent years, two-thirds of permanent residence places were awarded to migrants already in Australia, working or studying on temporary visas.

And while the government would like to bring in new migrants to help reduce our skills shortage, particularly in hospitals and aged care, it has an even more urgent priority: tackling the scandalous backlog of unprocessed visa applications piled up by the Department of Home Affairs under the Morrison government.

Immigration minister Andrew Giles told the summit Labor inherited a backlog from the Coalition of almost a million unprocessed visa applications. It was an unbelievable number, including applications from all types of people: separated partners, skilled workers, overseas students, business. Brian Schmidt recalled the department taking twenty-one months to process the ANU’s applications to bring in some Indian academics — for three-year appointments.

Giles said the government has now swung an extra 180 staff onto clearing the visa backlog, and has so far reduced it by 100,000. One of the thirty-six “outcomes” was that it will now spend an extra $36 million to lift visa staff by 500 people for the rest of this financial year.

But the waiting list includes a staggering 330,000 people who are already in Australia on bridging visas until their applications are processed. It’s fair to assume that many, maybe most, of them are applying for permanent visas. Given the scale of this backlog, an increase of only 35,000 in the migration target seems extraordinarily timid. Labor will have to revisit that, and soon.

The big “outcome” for the young unemployed and school leavers was the agreement by the prime minister and premiers to pump $1 billion into TAFE in 2023 to provide 180,000 extra fee-free places while they negotiate a longer-term agreement to reform the sector. Again, you applaud the direction — and in this case, the boldness and the federal–state cooperation — but it’s only a short-term solution.

Another “outcome” was Albanese’s announcement that, as an inducement for older workers to keep working, or retirees to return to work, pensioners will be allowed to earn an extra $4000 — just for this financial year — without losing any of their pension.

Good, but I think the PM is safe from being knocked down by a stampede. For a few months, it might induce some pensioners to put in a few hours a week at some nearby workplace. But why make it so small? Why end it on 30 June? It’s almost as if it was designed to avoid having any substantial impact. It’s tokenism, when big gains are possible from a comprehensive policy to extend working lives for those who want to keep going.

Chalmers and finance minister Katy Gallagher routinely fob off questions about spending proposals such as raising the Jobseeker allowance by declaring sympathetically, “There are lots of good ideas out there, and I wish we could fund them all. But we have inherited a trillion dollars of Liberal debt…”

Someone must call that out. First, Table 9.2 of the 2022–23 budget papers implies that Labor inherited $979 billion of gross debt from the Liberals — but $303 billion of that was inherited in 2013 by the Liberals from Labor (who in turn inherited $64 billion in 2007 from the Liberals, and so on). It’s Liberal and Labor debt. It’s Australia’s debt.

Second, gross debt looks at just one side of the balance sheet — which is why we focus on net debt. Table 9.2 estimates Labor inherited $631.5 billion of net debt from the Liberals, who in turn inherited $161.6 billion of net debt from Labor back in 2013. It’s a cheap, false political point.

But on the first part of its routine line, Labor is right: there are a lot of good ideas out there, and the government can’t fund them all. Its job is to sift through them and set the priorities. And if it picks a bad priority, such as backing the Liberals’ stage three tax cuts, it sticks out like a sore thumb.

These cuts were Morrison at his worst. They do not take effect until mid 2024, yet became law in 2019 — with Labor’s support, because it was frightened of being depicted as a high-tax party. This is the legislation that will give tax cuts of almost $175 a week to someone earning $200,000 a year, and $2 a week to someone earning $50,000.

The Parliamentary Budget Office estimates the cuts will deprive the government of $243.5 billion of revenue — 3 to 4 per cent of budget revenue — over their first nine years alone. The PBO says 78 per cent of that will go to the richest 20 per cent of households: by definition, those who need it least. And that, at a time when the budget is perpetually in deficit, and the government assailed on all fronts for spending too little.

The summit’s speeches ranged far and wide. Many speakers gave interesting accounts of what they were doing, or their experiences dealing with the systems now in place. Highlights are on YouTube, and the entire summit can be seen on Parliament’s video stream.

Transcripts regrettably are not available, except on ministerial websites and those of some speakers. I recommend Danielle Wood’s challenging and probing overview of Australia’s economic potential, which castigated business leaders for their risk-averse “economic funk,” and called for Australia to adopt “full employment as our lodestar” and remember that, if we want to raise living standards, in the long run, “productivity is almost everything.”

Peter Davidson, principal advisor to the Australian Council of Social Service, also made a lot of challenging points in urging Labor to reform the employment services system. “The system [has] not been working for a long time,” he said. “Jobactive was more of an unemployment payment compliance system than an employment service. It sent people out into the labour market and when they didn’t find jobs, told them to search harder. People were literally told: ‘It’s not our role to find you a job.’”

Ross Garnaut’s dinner speech recounted the reasons for Australia’s success in the postwar era, and the challenges reformers faced then — and in the Hawke-Keating era — and now. “I grew up in a Menzies world of full employment,” he recalled. “Workers could leave jobs that didn’t suit them and quickly find others. Employers put large amounts of effort into training and retaining workers. Labour income was secure and could support a loan to buy a house. Steadily rising real wages encouraged economisation on labour, which lifted productivity.”

In the postwar era, and in the 1980s, Garnaut said, “success was based on using economic analysis and information to develop policies in the public interest; on seeing equitable distribution of the benefits of growth as a central objective; and on sharing knowledge through the community about economic policy choices. This built support for policies that challenged old prejudices and vested interests.

“Personal and corporate taxation rates were much higher than before the war. Full employment and a wider social safety net supported structural change and much larger and more diverse immigration… Menzies’s political success was built on full employment — helped by Menzies insulating policy from the influence of political donations to an extent that is shocking today.”

Garnaut ended by exhorting Albanese and Chalmers to follow the path of Hawke and Keating, strong politicians who took big risks to bring in reforms when they were clearly needed. “We have to raise much more revenue while increasing labour force participation and investment,” he said, urging two radical reforms he advocated last year in his book Reset: a guaranteed income scheme, and a shift to cash flow taxation of business.

But Albo is not Hawke and Chalmers is not Keating. Like the business leaders who have dragged down Australia’s business investment to the lowest share of GDP ever recorded, they are risk-averse. Their priority is to retain power, and they see the way to do that is by giving people what they want, not trying to persuade them that tackling tough reforms is in the national interest.

It is possible, though, even likely, that they will end up having no choice. The crisis in aged care, in hospitals, in GP practices, in childcare and in teaching will force an end to governments’ model of saving money by underpaying those who work for you (or whose wages you pay indirectly). Australia’s system of doing government on the cheap has been tried, and failed. We are going to have to learn from how the rest of the West does it, and that means raising taxes.

Many have noted that the Hawke government, like this one, began its term by staging an economic summit, which brought business and union leaders to Old Parliament House with the similar aim of “bringing Australia together” to tackle its economic problems. But we should also recall that its follow-up two years later was to invite a similar cast for a tax summit.

That is what Albanese and his team should start planning for. We cannot solve our problems without an honest national dialogue on the need for higher taxes, and where we should be looking for increased revenue. It could be combined with the announcement of a super profits tax on mining companies and the big banks. Reform needs to start now. •