One consequence of the Abbott government's proposed work for the dole scheme might be to increase the number of people unemployed, as measured by the Australian Bureau of Statistics.
From July 2014, the ABS is changing the definition of "active" job search. This change is to bring the ABS into better alignment with international standards. The ABS includes an 'active' job search criteria to define the unemployed population. That seems sensible.
But what is 'active' job search?
According to international standards and those being adopted by the ABS, "active' job search steps are those which put a person in contact with prospective employers for work, either directly or through intermediaries (such as employment services, agencies or recruiting firms), or represent steps towards 'self-employment".
It seems the markets and a gaggle of commentators are getting a little excited about the June quarter CPI which showed headline inflation at 3.0 per cent annual terms and the underlying inflation measure at 2.8 per cent. At face vale, both are near or at the top of the RBA 2 to 3 per cent target band and without any further analysis would suggest there is something of an inflation issue in the economy.
But when one bothers to dig into the numbers, it is clear that inflation is probably slowing and one-offs have been pushing those annual figures higher.
In six monthly annualised terms, the path for underlying inflation over the past two years has been:
H1 2014: 2.5%
H2 2013: 3.1%
H1 2013: 2.1%
H2 2012: 2.7%
There was a bit of a lift in the second half of 2013, which now appears to be a quirk, perhaps influenced by the AUD dipping through much of 2013 and adding to some import prices. Obviously that mini-spike will drop out over the next two quarters which suggests a gentle pull-back in the annual inflation rate is likely by year end.
Everybody knows, although not everybody admits it, that consumption of tobacco in Australia has fallen in the aftermath of the plain packaging laws which came into being in December 2012.
The Fairfax media group is reporting this morning findings from the National Drugs Strategy Household Survey that show smoking levels are in decline. Not at all surprisingly, the numbers from the NDSHS dovetail with the hard data on the volume of tobacco consumed from the Australian Bureau of Statistics. Those data show that the volume of tobacco consumed is 5.3 per cent lower in the March quarter 2014 compared with the December quarter 2012.
What is interesting is the fact that the NDSHS survey was conducted between July and December 2013, before the 12.5 per cent rise in tobacco excise took effect. The authors of the report noted: "We know that that tax has a lot of influence over consumption so it's really important that the data was collected before that".
"The only thing that happened in the 12 months before that was the introduction of plain packaging laws."
The key findings were:
- The daily smoking rate plunged from 15.1 per cent to 12.8 per cent between 2010 and 2013.
- Most people are now 16 before they smoke their first full cigarette, up from 14 in 2010, and 95 per cent of 12 to 17-year-olds have never smoked.
The Fairfax report can be found here.
This article first appeared in The Guardian: https://www.theguardian.com/commentisfree/2014/jul/11/why-the-abbott-budget-was-the-perfect-political-poison
Why the Abbott budget was the perfect political poison
The Abbott government has learned the hard way that a wide-ranging policy agenda of small ticket savings annoys almost everyone. Take note, Labor
The net savings to the budget over the three years to 2016-17 totalled $18.2 billion – or around 0.3 per cent of GDP each year. Such a puny fiscal tightening leaves the budget in deficit in that time, and the bottom line is worse than the budget numbers left by the previous government in the pre-election fiscal outlook.
The first issue that the budget had to deal with was covering Tony Abbott’s spending spree on paid parental leave, roads and the medical research future fund. Next, it had to cover the huge loss of revenue from abolishing the carbon price and the mining tax, and cutting the company tax rate by 1.5 percentage points to 28.5%. The challenge in the budget was getting back to square one after these expensive pet projects were funded.
One of the most basic economic issues overlooked when it comes to the extra cost for businesses from the carbon price is that those costs have been passed on the consumers.
It was actually how the carbon pricing scheme was meant to work as the Treasury modeling from a couple of years ago made clear.
This is why electricity prices rose – the electricity generators passed on the extra cost from the carbon price to their customers. It is the same story with the airlines and no doubt fish wholesalers and other businesses with big refrigeration units and a high proportion of their business input costs in the form of energy.
The direct impact on the net profit margin of businesses from the carbon price was so trivial it probably rounded to zero as those costs were recouped from an increase in selling prices.
Since the election in September 2013, the Abbott government borrowing levels have exploded, as it has issued $87.05 billion worth of government bonds and T-Notes. On average, this new government borrowing has been around $2 billion a week.
The borrowing has been necessary as it needs to fund or cover the budget deficit plus maturities of debt (bonds and T-Notes) that were issued in the past. Netting this out means that the level of gross government debt has reached a record $322.687 billion which is $49.5 billion higher than when the Abbott government was elected.
As the government flounders with its budget in terms of the misguided measures that were designed to help the budget return to surplus and, linked to that, getting its policy agenda through parliament, it seems likely that the budget deficit will be wider than assumed at budget time and worse still, even at the time of MYEFO which saw Treasury fudge a range of estimates to make the budget bottom line look as bad as possible.
The less than robust news on the Australian economy continues to roll out – this time it is the labour force release which confirmed a moderate 15,900 rise in employment in June with the unemployment rate ticking back up to 6.0 per cent - this is equal to the highest unemployment rate in over a decade.
The employment data are a little disconcerting – the net change in employment in the last three months is just 20,100, well below the growth in the labour force which neatly explains why the unemployment rate has ticked up. Jobs growth needs to average close to 20,000 a month for there to be meaningful and lasting inroads into the unemployment rate.
This article first appeared in the Melbourne Review on 6 June 2014. https://www.melbournereview.com.au/commentary/article/falling-real-wages
It is rare in Australia to see falls in real wages but in the last six months the annual rate of inflation has been higher than the rate at which wages are increasing.
This loss of purchasing power for households, plus a hopelessly mismanaged and poorly framed budget, is driving consumer confidence sharply lower, towards levels not seen since the Global Financial Crisis was threatening to plunge the world economy into an economic depression.
Falling real wages are a sign of slack in the labour market. In other words, real wages are weak or actually fall when there is a sufficiently large pool of unemployed workers for potential employers to trim wage levels to entice people into a job. This wage moderation then filters through to those in employment and the path to real wage weakness in entrenched at least until the economy grows more rapidly and demand for labour increases with it.
It is crunch time for monetary policy in Australia with the data flow between now and the 5 August meeting of the RBA Board to largely determine whether it will cut interest rates or not.
This Thursday, the labour force data are published and another weak month for job creation (note employment is up a tiny 5,500 in the last two months) and / or a tick back up in the unemployment rate towards 6 per cent would suggest the nice spurt to economic growth and jobs in the March quarter was more a blip than a trend.
On 23 July, the June quarter inflation data are released and after a low reading for the March quarter, a further gain of around 0.5 per cent would be hinting strongly that inflation is likely to ease back to within the 2 to 3 per cent band by the end of 2014. The outlook for lower inflation is enhanced by the still strong Australian dollar and the fact that wages growth is meandering at record low levels. Softer economic growth is also a disinflationary factor.
The recent run of data continues to point to a stalling of economic growth after the stellar start to 2014 which saw annual GDP growth hit 3.5 per cent.
Indeed, the odds are rapidly building that June quarter GDP will be negative, driven by falling retail sales, a stalling in housing construction, a moderation in net exports and of course a further fall away in mining investment.