Ideas@TheCentre – The Centre for Independent Studies


Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Training must lead to employment

13 January 2012

The report Walk in My Shoes, released by Generation One on 23 December 2011, found that many Aboriginal people are trapped in a training cycle where they move from one training program to another without ever finding employment.

Generation One argues that what is needed is employer-directed training, where the training leads to a real job. This does not sound like rocket science. It is what apprenticeships have always done. But instead of funding more apprenticeships, the federal government has directed funding to Registered Training Providers (RTOs) to deliver training to Aboriginal people. These RTOs are given financial incentives to get bums on seats but are not held accountable for poor outcomes. There is rarely any proper evaluation of the effectiveness of these training programs.

The best way of assessing training is through work-based assessments, but it’s impossible to conduct such evaluations when the training never leads to employment.

One of the recommendations of the House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs report, Doing Time – Time for Doing: Indigenous Youth in the Criminal Justice System, was for the Department of Education, Employment and Workplace Relations (DEEWR) to provide financial incentives for employers to take on Indigenous apprentices.

The Commonwealth government has accepted that recommendation in principle, though it’s not clear what that means. Maybe ‘Yes, that sounds like a good idea but we can’t fund it.’

At the same time, some organisations provide work-based training without government assistance.

On my trip to Alice Springs last year, the manager of an Outstation Resource Service told me they eschew makeshift job schemes and wage subsidies; instead, they pay staff the going rate of $15 to $19 an hour for entry-level positions with the normal expectations of employment.

Employees who fail to turn up for work or don’t fulfil their job requirements are sacked.

This sends a clear message to workers and potential employees that there will be consequences if they don’t meet their employment responsibilities. But the policy is not so cut and dry. If sacked employees demonstrate a change in attitude towards work, they may be rehired.

The organisation exposes trainees to a variety of trades such as carpentry, plumbing and boiler making so they can make an informed choice about what trade they want to do an apprenticeship in. On completion of an apprenticeship, the organisation helps them start their own business. Since the program started seven years ago, 23 young Aboriginal people have become apprentices and role models for their communities.

The combination of support and real consequences that comes with work-based training is far superior to training programs designed to reward the provider. So why does the government keep funding them?

Sara Hudson is a Research Fellow at The Centre for Independent Studies.

Taking taxpayers for a ride

13 January 2012

Last week, consultancy firm KPMG published its Global Auto Executive Survey for 2012, in which executives from the world’s leading car manufacturers were asked about the situation of their industry. One of their key concerns was global overcapacity, estimated at somewhere between 20% and 30%.

It is against this background that we have to evaluate the federal government’s decision to grant Ford new subsidies towards the production of its Falcon model; it is likely that new support to Holden will be announced shortly. While Ford will receive an additional $53 million from Australian taxpayers, GM Holden is seeking up to $200 million to continue its Commodore production in Adelaide.

By international standards, both Ford Australia and Holden have always been small. With the rise of new car manufacturers in Asia, they are looking even smaller. All Australian manufacturers have a combined annual production of roughly 240,000 vehicles. Even countries like Romania, Taiwan and Belgium produce more. Australia’s annual output is dwarfed by that of South Korea (4.3 million vehicles), Japan (9.6 million) and China (18 million).

Car manufacturing for the mass market is an industry in which size clearly matters because of scale effects. If Australia did not already have a legacy car industry, it clearly would not be established under the current conditions. This tiny industry almost exclusively catering for our tiny market is simply unable to compete with much more efficient car manufacturers abroad.

If a business proposition is no longer viable, then companies need to draw the right conclusions. Indeed, in the KPMG survey, car executives responded that the global overcapacity should be dealt with through cuts in production and industry consolidation. Presumably, that means the weakest car manufacturers should go.

The response of the government is the opposite. By pouring in hundreds of millions of dollars into an industry that will remain unviable for the indefinite future, government is keeping Australian car manufacturing alive for political reasons.

This is an act of cowardice. A courageous government would not give in to the extortionate demands of global car corporates General Motors and Ford, but rather would explain to the Australian public that there is no justification for a car industry that cannot survive without ongoing taxpayer support.

A car industry is only worth having if it is able to stand on its own feet. Keeping an industry alive for the sake of having an industry is economic folly and a waste of taxpayers’ resources.

Dr Oliver Marc Hartwich is a Research Fellow at The Centre for Independent Studies.

Government can’t keep to its own spending constraints

13 January 2012

Curbing government spending is critical to closing the Commonwealth budget deficit, and dare we say it, setting the foundation for tax cuts. The federal government’s mid-year budget review does not provide any grounds for optimism. In fact, it is a case study of how incapable the government is of curbing its own spending.

Since the Whitlam era of the 1970s, 2008–09 saw the biggest increase in Commonwealth spending. While defending this splurge as an essential response to the global financial crisis (a proposition I would dispute, but not here), the Rudd government went on to reassure fiscal conservatives in February 2009 that once the Australian economy returned to trend, real growth of Commonwealth spending would be capped at 2% a year at least until the budget was restored to surplus. Coming after a particularly large increase, this cap was not very limiting, but at least it was something.

In fact the economy returned to trend more quickly than expected. But with the exception of 2010–11, when real spending fell slightly, Commonwealth spending has exceeded the 2% cap. Take the current financial year. According to the May budget, real spending was supposed to increase by 0.5% in 2011–12. By the mid-year review in November, the increase had been revised up to 3.7%. That’s an extra $8 billion in six months.

So the government decided to shift its own goalposts by redefining its 2% spending growth cap as a multi-year average. But now even this depends on a real contraction in spending in 2012–13 on a scale that has been seen only once in the last 40 years, during the Hawke-Keating crackdown on spending in the late 1980s. In fact, even nominal dollar spending (that is, before any adjustment for inflation) is supposed to fall slightly next year, according to the mid-year review, something that has never happened in the last 40 years.

I will let you be the judge of how likely this almost unprecedented single year squeeze on government spending in 2012–13 is to be achieved. But if it isn’t achieved, the government has little chance of delivering its much trumpeted return to surplus.

Robert Carling is a Senior Research Fellow at The Centre for Independent Studies.