Morrison needs the guts to save business (and the unions) from folly

Talk about don’t mention the war. The great and good – who miss jetting off overseas several times a year – keep telling us the economy won’t recover until we’ve reopened to the world. Seems they just can’t bring themselves to focus on the obvious: it’s wages, stupid.

It’s self-evident that, ultimately, it would be bad for our economy for us to stay a hermit kingdom. But these worthies are wrong if they imagine that re-opening our borders would immediately strengthen the recovery.

It’s true that our airlines won’t recover until the borders open, and our universities will remain crippled. But because Aussies normally spend far more on touring overseas than foreigners spend touring here, our tourism industry (including every country town) has been doing nicely thank you from the temporary ban on Aussies doing their touring abroad.

Our econocrats have been busy extending the fiscal stimulus to get unemployment down and skill shortages up, in the hope this will bid up wages, and so give the nation’s households more to spend through our businesses.

Trouble is, business has grown used to covering shortages of skilled labour by importing workers on temporary visas, thus avoiding pushing up wage rates (and training costs). Get it? The real reason they want the borders re-opened ASAP is so they can go on playing this game.

But it’s just one of many stratagems our businesses have been using to keep the lid on wages: increased use of part-time and casual employment, labour hire companies, discouragement of collective bargaining and greater use individual contracts, evading labour laws by pretending workers are independent contractors, and even wage theft.

Little wonder “most Australians have not had a meaningful pay rise for almost a decade” and “living standards have stagnated”, as Brendan Coates, of the Grattan Institute, reminds us.

And little wonder the economy’s growth was so weak before the arrival of the pandemic, and threatens to go back to being weak once last year’s massive fiscal stimulus has dissipated.

Market economies are circular – the money goes round and round. And nowhere is this clearer than in the two-sided nature of wages. Wages are both the chief cost faced by most businesses, and the chief source of income for their customers.

See the problem? The more success the nation’s businesses have in keeping the lid on wage costs, the less money the nation’s households have to spend on all the things business wants to sell them.

When the two sides of the wage coin get out of whack, so to speak, business starts strangling the golden goose. Efforts to achieve a healthy rate of economic growth – and rising living standards – won’t be sustained.

This is a form of market failure called a collective action problem. What seems to makes sense for the individual business is contrary to the interests of business as a whole. But no business wants to be the first to stop skimping on wage costs for fear of losing out to its competitors.

The solution to collective action problems is for some authority to come in over the top and impose a solution on all players, thus leaving none at a competitive disadvantage and all of them better off in the end because their customers have more money to spend.

In other words, the only way for us to escape an anaemic, wage-less recovery is for Scott Morrison to intervene in the economy to get wages up.

Since the Fair Work Commission’s annual minimum wage case affects the wages of one worker in four, he should have intervened in the case – as has always been the feds’ right – to encourage the commission to give a generous increase after last year’s miscued pandemic minginess.

He should be trying to set a higher wage “norm” for private sector employers by giving his own federal employees a decent, 3 per cent annual pay rise, and pressuring the premiers – Labor and Liberal – to do likewise.

He should be legislating to protect Australian workers – and his own tax collections - from the ravages of the “gig economy”, which tries to hide its evasion of our labour laws behind its genuine and welcome technological innovation.

And the very least he should be doing is to beef up the Fair Work Ombudsman’s staffing and ability to stamp out wage theft which – purely by mistake, you understand – has become endemic. This outbreak of utterly unAustralian illegal behaviour tells us a lot about the ultimately self-destructive, anti-wage mania that is gripping the nation’s business people.

The obvious problem is that doing anything to increase wage rates is totally foreign to a Liberal politician’s every instinct. The Business Council would be incandescent. Nixon going to China is one thing, but a Liberal putting up wages? Never.

Sorry, but the world turns, and successful leaders must turn with it. We used to have a chronic problem with inflation; now it’s chronic spending weakness. The unions used to have too much power; now they have too little.

Even so, there’s one thing a Liberal Prime Minister could be doing to help without giving offence to Liberal sensibilities. It would actually be a blow against his union and Labor enemies that would do a lot to strengthen the economy’s prospects over the next four years, should he have the strength to put the economy ahead of his own political discomfort.

It would save Australia’s workers from the self-interest of the union elite and the mindless tribalism of Labor (not to mention the bullying of a certain former Labor prime minister), which is happy to give their unions mates what they demand because the Libs want to destroy industry super (which is true, but not a good enough reason to oppose a change that would leave workers and the wider economy better off).

The strange thing about last month’s budget is that, though it sees the econocrats’ wage-lifting strategy getting unemployment down to 4.5 per cent by about the end of 2023, it sees no growth in real wages for the next four years.

In evidence to a Senate committee last week, Treasury secretary Dr Steven Kennedy was obliged to explain this discrepancy. It’s because, starting next month, legislation requires compulsory employer contributions to their workers’ superannuation to be increased by 0.5 percentage points for five Julys in a row, until they reach 12 per cent of wages in July 2025.

Relying on strong empirical evidence, Treasury has assumed that employers will cover 80 per cent of the cost of this impost by raising wages by that much less. The nation’s workers will thus be forced to save rather than spend a significant portion of what would have been their future pay rises.

The nation’s greedy, ticket-clipping super-fund managers play on everyone’s instinctive fear that they aren’t saving nearly enough to provide for a comfortable retirement. It suits the union elite (and their gullible Labor mates) to go along with this deception, even though Grattan’s Coates (and Treasury before him, and the recent Retirement Income Review since him) has demonstrated that, after including a part-pension, most workers will have plenty.

So the Labor tribe wants to force the nation’s employees to live on less during their working lives so they can live like royalty in retirement. Why doesn’t Morrison seek to reverse this Labor-initiated legislation? Because he fears he’d lose votes in the labour movement’s ensuing fear campaign.

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Our closed borders have turbo-charged the economy's recovery

The economy’s rebound from the lockdowns of last year has been truly remarkable – far better than anyone dared to hope. Even so, it’s not quite as miraculous as it looks.

As Tuesday’s budget leads us to focus on the outlook for the economy in the coming financial year, it’s important to remember that the coronacession hasn’t been like a normal recession. And the recovery from it won’t be like a normal recovery either.

The coronacession is unique for several reasons. The first is that the blow to economic activity – real gross domestic product - was much greater than we’ve experienced in any recession since World War II and almost wholly contained within a single quarter.

The reason for that is simple: it happened because our federal and state governments decided that the best way to stop the spread of the virus was to lock down the economy for a few weeks. But because this was a government-ordered recession, the governments were in no doubt about their obligation to counter the cost to workers and businesses with monetary assistance.

So the second respect in which this recession was different was the speed with which governments provided their “fiscal stimulus” and the unprecedented amount of it: for the feds alone, $250 billion, equivalent to more than 12 per cent of GDP.

But there’s a less-recognised third factor adding to the coronacession’s uniqueness: this time the government ordered the closing of our international borders. Virtually no one entering Australia and no one going out.

The independent economist Saul Eslake points out that “an important but under-appreciated reason for the so-far surprisingly rapid decline in unemployment, from its lower-than-expected peak of 7.5 per cent last July, is the absence of any immigration: which means that the civilian working-age population is now growing at (on average over the past two quarters) only 8,300 per month, compared with an average of 27,700 per month over the three years to March 2020,” he says.

This means that, with an unchanged rate of people choosing to participate in the labour force by either holding a job or seeking one, a rate that’s already at a record high, employment needs only to grow at about a third of its pre-pandemic rate in order to hold the rate of unemployment steady.

So any growth in employment in excess of that brings unemployment tumbling down.

Get it? It’s not just that the bounce back in jobs growth has been much quicker and stronger than we expected. It’s also that, thanks to the absence of immigration, this has reduced the unemployment rate much more than it usually does.

To put it another way, Eslake says, if the population of working age continues growing over the remainder of this year at the much-slower rate at which it’s been growing over the past six months, employment has to grow by an average of just 17,000 a month to push the unemployment rate down to just below 5 per cent by the end of this year (assuming the rate of labour-force participation stays the same).

By contrast, if the working-age population was continuing to grow at its pre-pandemic rate, employment growth would need to average 29,000 a month to get us down to 5 per cent unemployment by the end of this year.

Now, it’s true that as well as adding to the supply of labour, immigration also adds to the demand for labour. So its absence is also working to slow the growth in employment. But this has been more than countered by two factors.

The obvious one is the governments’ massive fiscal stimulus. But Eslake reminds us of the less-obvious factor: our closed borders have prevented Australians from doing what they usually do a lot of: going on (often expensive) overseas trips.

He estimates that this spending usually amounts to roughly $55 billion a year. But we’re spending a fair bit of this “saving” on domestic tourism – or on our homes.

Of course, we need to remember that, as well as stopping us from touring abroad, the closed borders are also stopping foreigners from touring here. But, in normal times, we spend more on overseas tourism than foreigners spend here. (In the strange language of econospeak, we are “net importers of tourism services”.)

Eslake estimates that our ban on foreign tourists (and international students) is costing us more than $22 billion – about 1.25 per cent of GDP – a year in export income. Clearly, however, our economy is well ahead on this (temporary) deal.

Another economist who’s been thinking harder than the rest of us about the consequences of our closed borders is Gareth Aird, of the Commonwealth Bank.

The decision by Scott Morrison and Josh Frydenberg to “continuing to prioritise job creation” and so drive the unemployment rate down much further, has led to much discussion of the NAIRU – the “non-accelerating-inflation rate of unemployment” – the lowest level unemployment can fall to before wages and prices take off.

The econocrats believe that little-understood changes in the structure of the advanced economies may have lowered our NAIRU to 4.5 per cent or even less. But Aird reminds us that, for as long as our international borders remain closed, the NAIRU is likely to be higher than that.

“If firms are not able to recruit from abroad then, as the labour market tightens, skill shortages will manifest themselves faster than otherwise and this will allow some workers to push for higher pay,” he says.

“There is a lot of uncertainty around when the international borders will reopen, what that means for net overseas migration and how that will impact on wage outcomes.”

But “in industries with skill shortages, bargaining power between the employee and employer should move more favourably in the direction of the employee and higher wages should be forthcoming,” he concludes.

Higher wages is what the government’s hoping for, of course. Interesting times lie ahead.

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Orana to Christmas, summer and the chance to go bush

Out on the plains the brolgas are dancing
Lifting their feet like war horses prancing
Up to the sun the woodlarks go winging
Faint in the dawn light echoes their singing
Orana! Orana! Orana to Christmas Day

To me one of the nicest bits of Christmas is a chance to sing the Australian carols of the old ABC’s William G. James, including Carol of the Birds. Orana, by the way, means welcome.

I don’t like to boast, but one of my achievements this year was to see a brolga. Several, in fact. Flying rather than dancing but, even so, one to cross off my bucket list. I’ve also seen jabirus, magpie geese, comb-crested jacana, osprey, white-bellied sea eagles, red-tailed black cockatoos and crocodiles, fresh and salty.

I’ve also seen Timorese ponies, Asian buffalo and – more surprising – Indonesian banteng cattle. By now the banteng are endangered in Indonesia, but going strong in northern Australia.

All during a 12-day tour of Arnhem Land, bouncing along unsealed roads in a truck converted to a bus, to visit remote Aboriginal communities (complete with permits) and cave paintings. An unforgettable experience, one moneyed Baby Boomers should consider before they jet off on yet another exploration of other people’s homelands.

Actually, I sometimes wonder whether the day is coming when – because of the damage it does to the atmosphere – we will look back with amazement and envy on the relatively brief golden age when flying for tourism was not only permitted but dirt cheap, so we roamed the globe whenever we could get away.

It’s a terrible thought. Let’s hope it never happens, thanks to some technological advance in aircraft fuel. But while it lasts, let’s not forget what a privileged generation we are.

But what of ecotourism? Is it as virtuous as we wilderness wanderers like to imagine, or will the new age puritans put the kybosh on that, too?

Well, I’ve been checking what the academic experts are saying – courtesy of my second-favourite website, The Conversation – and, though you can find the killjoys if you look, I think ecotourism gets a qualified tick.

It’s true that, in an ideal world, we’d all stay at home admiring nature from afar and insisting the politicians keep the outback – and other continents’ backblocks – locked up and in pristine condition. Where damage had already been done, we’d happily pay high taxes to compensate farmers, miners and tour operators for closing their businesses, and to restore the land to its former state.

No, not going to happen. Those who live in far-flung parts aren’t going to renounce the material ambitions that drive the rest of us. They’ll continue finding ways to make a buck. If so, ecotourism – whatever its downsides – will do a lot less harm than many other ways for bushies to earn a living.

Dr Guy Castley and two other researchers at Griffith University find ecotourism can contribute to conservation or adversely affect wildlife, or both. Attitudes of local communities towards wildlife influence whether they support or oppose poaching. Income from ecotourism may be used for conservation and local community development, but not always.

But for seven of the nine threatened species they studied – the great green macaw in Costa Rica, Egyptian vultures in Spain, hoolock gibbons in India, penguins, wild dogs and cheetahs in Africa, and golden lion tamarins in Brazil – ecotourism provided net conservation gains.

This was achieved through establishing private conservation reserves, restoring habitat or by reducing habitat damage. Removing feral predators, increasing anti-poaching patrols, captive breeding and supplementary feeding also helped.

For orang-utans in Sumatra, however, small-scale ecotourism couldn’t overcome the negative effects of logging. And for New Zealand’s sea lions, ecotourism only compounded the effects of intensive fishing because it increased the number of pups dying as a result of direct disturbance at sites where the sea lions came ashore.

Michele Barnes and Sarah Sutcliffe, of James Cook University, studied the effect of a shark education and conservation tour off the coast of Oahu, Hawaii. Sharks are crucial to our marine ecosystems, yet many shark populations are in decline because of fishing (particularly for shark-fin soup), fisheries bycatch, habitat destruction, and climate change.

Sharks have a PR problem. They are feared by many, demonised by the evil media, treated as human-hunting monsters, and cast as the villains in blockbuster movies. In many places, governments cull sharks in the name of beachgoers’ safety.

The researchers found that the program gave participants significantly more knowledge of the ecological role of sharks and a more favourable attitude towards them. It also had a significantly positive effect on people’s intentions to engage in shark conservation behaviour. This remained true even after allowing for the participants’ greater initial positive attitudes towards sharks than the public generally.

Even when not off somewhere exotic, my family almost always ends up holidaying in or near some national park. But what about all the damage done to parks to accommodate the needs of tourists?

Dr Susan Moore, of Murdoch University, and others from Southern Cross University, argue sensibly that parks need visitors to get vital community and political support.

“We need people in parks because people vote and parks don’t,” they say. “Strong advocacy from park visitors for environmentally friendly experiences, like wildlife viewing, photography, hiking, swimming, canoeing and camping, can counterbalance pressures for environmentally destructive activities such as hunting and grazing.” Amen to that.

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The economy: old dog shows signs of life

With bad news this week from the March quarter survey of business capital expenditure, we need cheering up. Fortunately, budget statement No. 2 shows Treasury has been looking under every rock to find some good news.

It kicks off its annual assessment of the economic outlook by reminding all us worriers that the economy is entering its 25th consecutive year of growth, which is the second longest continuous period of growth of any advanced economy in the world.

And, we're reminded, though the economy has grown by less than its medium-term average ("trend") rate of 3 per cent-odd for five of the past six financial years, and is now forecast to grow by just 2.5 per cent in the financial year soon to end and 2.75 per cent in the coming year, this still leaves us as "one of the fastest growing economies in the advanced world".

Treasury gives us an update on the story we've become so familiar with in the past few years: the boom in investment in new mines and natural gas facilities is fast subsiding, leaving a big vacuum in economic activity that needs to be filled by faster growth in the rest of the economy.

To encourage such growth, the Reserve Bank has resumed cutting the official interest rate, such that it's now fallen 2.75 percentage points since its peak in late 2011, to a record low of 2 per cent. And, despite all the complaints about spending cuts, Joe Hockey has ensured his budget is only a minor drag on economic activity.

In response, we're now getting quite strong growth in new home building, and consumer spending is stronger than it was.

Fine. But that brings us to the crux of our continuing sub-par performance: business investment spending. Treasury expects mining investment to fall by more than 15 per cent this financial year, then by 25 per cent in the coming year and a further 30 per cent in 2016-17.

Yipes that's precipitous. And Treasury fears non-mining investment will show only modest growth until 2016-17 when it should increase by 7.5 per cent.

Put mining and non-mining together and you see business investment spending is the economy's continuing weak spot. After falling by 5 per cent last financial year, total business investment is expected to fall by another 5 per cent in the year just ending, then by 7 per cent in the coming year and even by a further 3.5 per cent in 2016-17.

Now you see why this week's figures for business "cap-ex" were such a downer. They really confirmed Treasury's dismal outlook. They showed a weak outcome for the March quarter and an unexpected deterioration in how much non-mining businesses expect they'll be spending in the coming financial year.

Moving right along, Treasury reminds us the economy does have a couple of things going for it apart from rock-bottom interest rates: one is lower petrol and oil prices and another is lower electricity prices (with more falls to come in some states).

And then, of course, there's the lower dollar, down mainly because the prices of our mineral exports are down, but perhaps also because our interest rates are lower than they were relative to those of other countries.

Our "real" exchange rate – that is, after adjusting the nominal exchange rate for our inflation rate relative to those of our trading partners – appreciated by about 30 per cent during the mining prices boom, but since September 2011 it has depreciated by about 13 per cent.

That's bad news for businesses and households buying imports, of course, but good news for Australian firms competing against imports in the domestic market. It's also good news for Australian exporters, who now get more Aussie cents for every US dollar they earn.

Treasury is forecasting strong growth of 5 or 6 per cent a year in the volume (quantity) of our exports over the next few years. Most of that is increased exports of minerals and energy as new mines come on line, but some of it comes from faster growth in non-mining exports.

On the other side, Treasury's expecting the volume of our imports to fall by 3 per cent in the year just ending and by a further 1.5 per cent in the coming year, before growing moderately by 2.5 per cent in 2016-17.

Why? Mainly because of fewer imports of heavy mining equipment, but also because the lower dollar will allow local firms to recapture market share from imports.

Such as? A classic exporting and import-competing industry is tourism. Real travel spending by international visitors to Oz has grown by 11 per cent since the start of 2012, whereas real travel spending by Aussies travelling abroad has decreased by 11 per cent.

The combined effect has been to turn our balance of trade in tourism services from a small deficit to a much bigger surplus. The increased inflow of tourists has been shared by all states.

Remember how much our leaders bang on about the big bucks to be made from China's rapidly growing middle class? Tourists from China accounted for more than a quarter of the growth in tourist spending in Oz last financial year.

The more than three-quarters of a million Chinese visitors that year spent an average of $8600 per person with our businesses.

Now get this: the volume of our exports of medium-skilled and technology-intensive manufactures has grown almost continuously over the past 30 years, as have our exports of high-skilled and technology-intensive manufactures, with the latter now bigger than the former.

It's really only the low-skilled and labour-intensive manufactures that have fallen back. The starring industries make goods such as pharmaceuticals, professional and scientific equipment, and machinery and transport equipment.

Strikes me we're not dead yet.

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