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.

State governments in a jobs quandary

21 March 2014

robert-carling Two years ago Queensland voters changed their government in the most emphatic terms imaginable, partly because the ousted government had left the state’s finances in a mess. Yet within months public opinion was turning against the Newman government for its cost-cutting zeal, and especially its public sector job cuts, which were part of the response to the mess.

Since then, the issue of job security has become more salient, and not only in Queensland. A national poll this week suggested that while a majority of voters say getting back to budget surplus is a priority, 86% say generating jobs is a higher priority.

These issues will doubt play on the minds of the new governments of South Australia and Tasmania, and for that matter all the other state governments. The analysis of state finances in the new CIS report, ‘States of Debt’, argues that in cutting back operating costs, the Newman government is on the right track and other states, to varying degrees, need to do the same.

One of the most startling features of state finances since the global financial crisis has been the disappearance of operating surpluses. Combined with a ramp-up in capital (infrastructure) spending, this has put most state budgets into uncomfortably large cash deficits, and debt has accumulated at a rate that should not be allowed to continue. One of the solutions is to restore operating budgets to surplus. This is necessary if states are to be able to pay for infrastructure without piling up too much debt.

Restoring operating surpluses requires tightening up on operating costs. Because state government operations are labour-intensive (think of schools, hospitals and policing) their costs are dominated by payroll. Curbing operating costs has to involve cutting government jobs and clamping down on public sector pay. This is what the Newman government is doing.

Voters are entitled to demand fiscal discipline in the abstract while disliking specific actions governments take to impose it. But at some point they need to recognise that state governments don’t exist to provide jobs regardless of the need for them or taxpayers’ willingness to finance them. Balancing budgets and achieving employment growth should not be thought of as either/or propositions. Steering the public finances onto a sustainable path will assist employment growth.

Robert Carling is a Senior Fellow at The Centre for Independent Studies and author of States of Debt.



Busting the myths of the paid parental leave scheme

21 March 2014


jha-trisha As the May budget draws nearer, women’s groups, business and political watchers alike are anticipating the incorporation of the Abbott government’s flagship paid parental leave scheme, funded partially by a 1.5% levy on big business.

The government’s vocal commitment to this $5.5 billion scheme sits uncomfortably alongside rhetoric about the end of the age of entitlement and the need for tough choices to be made to improve the nation’s finances.

The scheme has been justified by the government as an ‘investment’ amid suggestions it will improve productivity. Rather than paying the minimum wage, workers covered under the scheme will be paid at their replacement wages, on the basis that doing so will improve participation, boost women’s super at retirement and increase fertility. These claims are either wrong or greatly exaggerated.

It’s highly unlikely there will be an increase in fertility. As the government is fond of pointing out, the proposed scheme bears a greater resemblance to those in place in other OECD countries compared with the existing scheme. Unfortunately, the enthusiasm for making this point masks the fact that these generous schemes in countries like Sweden and Norway have produced fertility rates virtually indistinguishable from our own. Strike one.

The other significant difference is that the proposed scheme includes superannuation at the going rate (currently 9.25%), which will boost a woman’s super accumulation by somewhere in the vicinity of $50,000 for an average full-time income-earner. These increases are real. But the dent in women’s savings at retirement compared to men’s is not caused by six months of parental leave; it’s the years spent in low-paid part time or flexible work due to personal choices or inadequate childcare availability. Strike two.

Productivity and participation are the bigger issues. They are not the same thing – if more low-productivity workers shift their behaviour and re-enter the workforce than higher-productivity earners, participation goes up but productivity doesn’t. The high-productivity earners the government wants to entice back into the workforce are most likely to go back anyway, thanks to high pay and generous employer-provided enticements like flexible work and on-site childcare. Strike three.

Paid parental leave is not a concept without any value: improving women’s participation is one way to broaden the tax base over the medium-term to tackle coming fiscal problems, and it has other benefits too. But all the evidence suggests that this scheme is not the way to go about it. Nor do the alleged benefits to fertility and income upon retirement hold enough water to justify the scheme. The government should go back to the drawing board on this one.

Trisha Jha is a Policy Analyst at The Centre for Independent Studies.

The problem with youth is cost and incentive

21 March 2014

alex-philipatosAt 6.3%, Australia’s unemployment rate is at its highest level in ten years. While our unemployment figures compare well to the rest of the OECD, Australia was unlike its European counterparts in that it was not hit hard by the global financial crisis. It means that rather than returning to the strong growth and record low unemployment experienced in 2008, our economy has flat-lined.

These points were highlighted in Greg Jericho’s recent ABC article bemoaning a significant fall in youth employment since 2008. Jericho points to a near 10% fall in the employment-to-population ratio among 15 – 24 year-olds since 2008 to illustrate the souring employment prospects of our youth. By contrast, the employment-to-participation ratio among 24 – 54 year-olds dropped only 1% in the same period.

What Jericho fails to point out is that changes to the welfare system enacted by the Rudd government have decreased incentives for young workers to find emplloyment. At the same time, changes to labour market settings have reduced the demand for young, low-skilled labour.

Last year, former CIS Research Fellow Andrew Baker pointed to the rise of non-job seekers on unemployment benefits, highlighting that nearly half of those on unemployment benefits did not necessarily need to be looking for work to receive benefits.

Following the GFC, the government altered the eligibility requirements for those on unemployment benefits such that recipients could stay on benefits without being required to look for work, so long as they enrolled in some sort of education and training. Newstart recipients can enter into work experience after 12 months and hold onto their benefits, while early school leavers who later complete year 12 (or equivalent) can continue receiving income support.

These changes made it easier for the unemployed to continue drawing welfare benefits without actively seeking a job. At the same time, the Fair Work Act increased the cost for businesses in hiring young workers.

The award modernisation process simplified and amalgamated 3,715 state and federal awards to 122 modern awards. That made for a simpler award system, but in the process, the minimum wages and penalty rates were factored up towards the highest common denominator rather than the lowest.

This has meant that along with the yearly minimum wage hikes, there have been additional hikes to award wages as the new modern awards are phased in.

If you increase the cost of low-skilled work, you reduce the demand for that work. Young people are now more expensive to employ and at the same time are finding it easier to remain eligible for welfare benefits without looking for work. Does it come as a surprise that young workers are opting out of the labour market?

Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.