Chapter 6

Economic response part II: the recession and the Australian jobs crisis

The impact of the COVID-19 pandemic on the Australian economy will be long-lasting.
The Department of the Treasury has forecast that the pandemic will result in an Australian economy that is smaller, with higher unemployment and substantially lower business investment going forward than would otherwise have been the case.1
Record low wages growth, already being experienced by Australians in the years prior to the pandemic, is forecast to persist over the forward estimates with impacts felt beyond the medium term.2
The budgetary impact of COVID-19 will be equally long-lasting. The deficit for the 2020–21 financial year is a record high of $213.7 billion, with the Department of the Treasury projecting $480.5 billion of cumulative deficits over the forward estimates and net debt expected to increase to almost
one trillion dollars over the same period.3 Budget repair will only occur once the economy has recovered from the worst impacts of COVID-19.
With such a depressed economic and fiscal outlook, the Australian Government (government) needs to ensure that the decisions it makes facilitate as rapid and sustainable an economic recovery as possible.
With almost one million Australians unemployed and unemployment forecast to remain above pre-COVID levels over the forward estimates, the government's focus must be on driving job creation and improving job security.
Fiscal support measures must be targeted for maximum effectiveness: on measures that lift productivity and participation, increase consumer and business confidence, and support those who have suffered the worst impacts of COVID-19.
This chapter considers some of the smaller economic measures and programs that the government has put in place with the stated intention of supporting the economy and facilitating job creation. It includes discussion on:
the need for ongoing fiscal stimulus and job creation measures;
the JobMaker plan; and
missed opportunities to support jobs, including reforms to the childcare subsidy scheme, investment in social housing, and other initiatives such as policies to boost onshore manufacturing and renewable energy projects as sources of job creation.

The need for ongoing fiscal stimulus and job creation measures

Box 6.1:   Interim finding

Economic forecasts over the forward estimates paint a grim economic reality for the years ahead. The Australian economy was weak prior to COVID-19, and recovery from the recession will take a long time.
The economy cannot afford for the Australian Government to prematurely withdraw fiscal stimulus measures and jeopardise the recovery.
In the early days of the COVID-19 pandemic, the Prime Minister frequently referred to an inevitable 'bounce-back' or 'snapback' of the Australian economy.4 However, Australia remains in recession and economic forecasts indicate we are unlikely to experience any sudden or miraculous recovery.5
In charting a course towards recovery, our aim should not simply be to return to the underwhelming economic conditions Australians were experiencing prior to the bushfires and the pandemic.
National Accounts and Australian Bureau of Statistics (ABS) data from early 2020 reveal the Australian economy was struggling with declining business confidence, high underemployment and stagnant wages well before the catastrophic events of 2020.6
The government must use the considerable fiscal and policy levers available to it more effectively than it did pre-crisis, and prioritise job creation measures which help those hardest hit by the pandemic to recover.

The Australian economy prior to COVID-19

The economy was struggling before the pandemic hit. The December quarter 2019 National Accounts release from the ABS showed that quarterly growth slowed from 0.6 per cent to 0.5 per cent; the private economy did not grow at all; annual consumption growth was growing at its slowest pace since the Global Financial Crisis; and total private business investment continued to go backwards, declining for three consecutive quarters.7
Increased wage growth was not on the horizon even before the impact of COVID-19. Reserve Bank of Australia (RBA) Deputy Governor,
Dr Guy Debelle said on 26 November 2019 that 'wages growth has declined noticeably since 2012' and wages growth was expected 'to remain largely unchanged at its current level over the next couple of years'.8

Australia in recession: economic outlook over the forward estimates

Nearly three decades of uninterrupted economic growth in Australia came to an end when the economy entered a recession after suffering the deepest economic contraction since the Great Depression.9
Recessions have a devastating impact on employment, and the sudden and severe economic shock associated with the COVID-19 pandemic was no different. The sharp contraction in economic activity experienced in the March and June quarters had a shocking and immediate impact on the number of Australians in employment. In just one month, more than one million Australians either lost their jobs or had their working hours reduced to zero.10
In its release for the June quarter 2020 National Accounts, the ABS said that 'the global pandemic and associated containment policies led to a 7.0 per cent fall in GDP [Gross Domestic Product] for the June quarter'.11 This followed a fall in Gross Domestic Product (GDP) of 0.3 per cent in the March quarter of 2020.12
Recent economic analysis from the RBA and the Department of the Treasury suggest the government's existing economic response measures will not be sufficient to address persistently high levels of unemployment and low wages growth.13 Additionally, according to forecasts by both the RBA and in the recent Budget, unemployment is expected to peak at 8 per cent in the December quarter of this year and remain higher than pre-pandemic levels for the next four years.14
Wage growth is also forecast to remain sluggish, with the budget papers projecting wages will grow at just 1.25 per cent in this financial year and
1.5 per cent in the next,15 and the RBA saying 'wages growth is also expected to remain very weak in the near term'.16
The budget papers also state that the impact of COVID-19 on the economy and on tax receipts will be 'long-lasting', with lower population growth from lower net overseas migration during COVID-19 weighing 'on the economy into the medium term'.17

The ongoing need for fiscal stimulus and job creation

With forecasts for Australia to experience a slow and potentially uneven economic recovery, and ongoing uncertainty about the timing and scale of the global economic recovery, policymakers and experts have repeatedly warned about the dangers of withdrawing fiscal stimulus too quickly.18
On 28 May, the Governor of the RBA, Dr Philip Lowe testified that:
More generally, right through the next year or so, I think the economy is going to need support from both monetary and fiscal policy. There are certain risks if we withdraw that support too early. I know, from the Reserve Bank's perspective, we're going to keep the monetary support going for a long period of time, and I'm hopeful that the fiscal support will be there for a long period of time.19
In September, the Department of the Treasury told the Senate Select Committee on COVID-19 (committee) that 'it is undisputed' that the decision to reduce the rate of JobSeeker and introduce new tapering for JobKeeper would 'take money out of the economy'.20
The government's decision to reduce the rate of the Coronavirus Supplement and refusal to commit to a permanent increase in the rate of JobSeeker, as discussed in Chapter 5, stands in direct conflict with the advice of economists, business groups, unions, peak bodies and many others.21
Instead of the government prematurely withdrawing fiscal stimulus and insisting that a 'snapback' will occur contrary to the advice of experts, the prevailing economic data demonstrates a need for the government to develop and implement a far more comprehensive plan to create jobs in the Australian economy and facilitate a swifter and sustainable economic recovery.22
The committee urges the government to consider some of the ideas for job creation presented in this chapter, such as reforming the childcare subsidy and directly investing in social housing.23

The 'JobMaker' plan

Box 6.2:   Interim finding

In the six months since it was first announced, the Prime Minister's 'JobMaker Plan' has promised much but delivered little.
Two major initiatives under the JobMaker brand—HomeBuilder and the Hiring Credit—significantly overstated the likely job creation impact.
The immediate aftermath of the economic fallout from COVID-19 restrictions meant significant fiscal support would be required to address the growing jobs crisis in Australia. In addition to JobKeeper and JobSeeker, specific measures to stimulate the economy and create jobs will be required.
On 26 May the Prime Minister announced a 'JobMaker plan for a new generation of economic success, that can guarantee the essentials that Australians rely on'.24
It was described by the Prime Minister as a 'plan' or an 'agenda' but a document defining the plan, or setting out the agenda, was not publicly available for scrutiny until the budget was delivered in October.
According to the government's own documents, the $74 billion JobMaker Plan 'will boost economic growth, create jobs, invest in our future industries and skills, remove red tape, guarantee essential services and restore confidence in a stronger recovery'.25
Measures included in the 2020–21 Budget under the 'JobMaker' title include infrastructure, a hiring credit for unemployed young people, the Second Women's Economic Security Package, and investment in research and development.26
However, in the six months since the Prime Minister launched JobMaker, the plan has failed to mature beyond low-detail announcements and branding. Of the two initial pillars of the JobMaker plan—industrial relations reform and improvements to VET funding arrangements—little progress appears to have been made.
Much of the Prime Minister's focus on vocational education and training reform was also not new. For example, his inclusion within JobMaker of plans to change the 'fundamentally flawed' National Agreement for Skills and Workforce Development between the states and the Commonwealth simply repackaged a recommendation of the government's Joyce Review from
April 2019.27
Further, it became evident to the committee that key departments had not been consulted or even informed of the JobMaker plan prior to its announcement. In a hearing on 6 August with the Department of Education, Skills and Employment, the department indicated it first learned about JobMaker when it was announced publicly by the Prime Minister, and that it was not clear who the lead agency was.28
During the 11 August hearing, committee members and the Chair raised concerns in relation to the lack of available detail regarding JobMaker. In particular, the committee queried the number of jobs that would be created and what industries the jobs would be created within.29
The committee is concerned by evidence it received revealing that, in its haste to announce measures to support job creation, the government may be exaggerating the benefits to employment associated with its JobMaker package.
In promoting both the HomeBuilder scheme and the JobMaker Hiring Credit, official government documents and their responsible ministers have claimed large numbers of jobs will be created or supported through these respective programs.30 However, when these claims have been appraised by expert groups or critically examined by the committee, evidence has suggested that significantly fewer jobs are anticipated to be created or supported.31
When HomeBuilder was announced in June, the government claimed in its associated media release that 140 000 direct jobs would be supported.32 In response to a question on notice to the committee, which sought to interrogate the veracity of that claim, the Department of the Treasury provided evidence on its analysis of the program which suggests it would directly generate only 9600 jobs.33 Similarly, despite claims by Treasurer Frydenberg on budget night that the JobMaker Hiring Credit would deliver 450 000 jobs, evidence from the Department of the Treasury officials to Senate Estimates revealed they anticipate the measure to deliver 10 per cent of that claimed figure, or just
45 000 positions.34
The committee supports efforts through JobMaker and other programs to promote job creation, however, claimed benefits to employment should be supported by verifiable evidence. A failure to ground JobMaker policy design and implementation in an appropriate evidence base will undermine confidence in the programs and will not deliver the support for job creation that Australians require.
The committee will examine every measure under the JobMaker Plan closely in future hearings, with a particular focus on the number of jobs created through JobMaker, and the effectiveness of the spending and implementation of the individual measures.

Missed Opportunities for Economic Recovery

Box 6.3:   Interim finding

The Australian Government's JobMaker plan should have included investment in social housing and reforms to childcare to promote jobs and economic recovery.
The Australian Government should consider these and other opportunities to get Australia back to full employment, including new policies to promote onshore manufacturing capability and renewable energy as sources of job creation.
The government's own budget papers, even when its contested JobMaker employment projections are included, show unemployment will remain above pre-pandemic levels for the next four years.35 The government has also signalled that it intends to rely on the private sector to do the heavy lifting in getting Australia back to full employment; with the 2020–21 Budget committing to a greater focus on fiscal discipline and paying down debt once unemployment falls below 6 per cent, in lieu of ongoing fiscal support for employment.36
With stark economic forecasts and the economy still reeling from a deep recession, the government's existing plan for jobs is inadequate.
The committee urges the government to consider additional measures to create jobs and facilitate economic recovery. This section singles out two measures which received strong support across a range of submissions as well as in expert testimony. It also identifies other opportunities for economic recovery which warrant consideration by government. The committee intends to pursue these opportunities in more detail over the course of its inquiry.

Social Housing

Submitters including the Grattan Institute, Australian Council of Social Service and the Impact Investment Group suggested that the government should have considered complementing the HomeBuilder scheme with investment in social housing.37 According to the Grattan Institute, social housing is one of the most effective forms of economic stimulus available because of the speed with which governments can generate construction activity through direct investment:
[The 2008–09 housing stimulus program] delivered on its objectives within the budget that was provided, and it did so very rapidly. One of the real advantages of something like social housing is that, while it can be hard to build a tunnel under the Yarra River, you can build a four-storey apartment very quickly.
The one observation I'd make in comparison to HomeBuilder is that, to the extent that HomeBuilder does support employment, it will be in the outer suburbs of our major cities…. Therefore social housing could arguably complement that program and provide that stimulus that we do need.38
It is also noteworthy that in June 2020, the Organisation for Economic Cooperation and Development recommended in its Economic Forecast Summary that the government invest in social housing.39
Submitters also suggested that broader social housing investment was an important measure to support vulnerable members of the community during COVID-19. As the Grattan Institute argued in June:
At the most recent Census (2016), more than 116,000 people were homeless, up from 90,000 a decade earlier. COVID-19 has shown us that if we let people live in unhealthy conditions it can help spread disease – affecting everybody's health.40
The government did not contribute any funding towards investing in new social and affordable housing in the 2020–21 Budget.41
A report by the Australian Housing and Urban Research Institute in November noted that for state and territory governments, 'social housing has featured as a key plank of the economic recovery platform', but that 'there has been no new direct allocation of funding for social housing by the Australian Government, which contrasts with the Global Financial Crisis, where
$5.2 billion ($6.5 billion in 2020 dollars) was allocated to the Social Housing Initiative'.42
In his Budget in Reply speech on 8 October 2020, the Federal Opposition Leader proposed a repair program for social housing.43 To date, the government has not responded to this announcement.
Noting the evidence from the Grattan Institute and others regarding social housing's effectiveness as economic stimulus, a program to commence urgent repairs and maintenance on Australia's housing stock would be a positive stimulus measure to provide work for tradespeople, in addition to the social benefit of fixing these houses.
The committee is concerned that by relying on the HomeBuilder program as its sole initiative to stimulate residential construction, the government has missed significant opportunities for a more rapid and effective stimulus in the form of direct investment in social housing.

Childcare as a measure to boost economic participation

In a hearing with economists on 2 July, the committee received evidence from Mr Koukoulas and Dr Denniss on the critical importance of the childcare sector to Australia's economic recovery, both in relation to boosting workforce participation and lifting the wages of a predominantly female workforce.44
Investment in the childcare sector represents a highly effective form of expenditure. According to the Victoria University's Centre of Policy Studies, net government spending of $2.8 billion on additional childcare services would create 135 000 new jobs by 2030, making it almost 20 times more effective at job creation per million dollars spent than tax cuts.45
In August 2020, the Grattan Institute proposed that the government 'boost the Child Care Subsidy and improve its design so that second-earners take home more pay from additional hours of work'.46
Before the COVID-19 crisis, a typical Australian woman with pre-teenage children worked an average of 2.5 days a week. The Grattan Institute found that the 'workforce disincentive rate' saw primary carers (predominantly women) faced with the choice of either staying home or working a fourth or fifth day in the week with almost no additional take-home pay once the cost of childcare was taken into account. The Grattan Institute also found that high outofpocket childcare costs were an issue for families who had lost jobs or income due to COVID-19.47
Under the Grattan Institute's proposal, a $5 billion investment would increase GDP by $11 billion per year through increased workforce participation and would generate $150 000 in higher lifetime earnings for a typical Australian mother.48
In its 2020–21 Budget, the government did not announce any reforms or further investment in the childcare sector.49
However, in his Budget in Reply speech on 8 October 2020, the Leader of the Opposition proposed that the government:
eliminate the $10 560 child care subsidy cap to remove the disincentive to work a fifth day in the week;
lift the maximum child care subsidy rate to 90 per cent; and
increase the child care subsidy rates with taper rates attached dependent on income.50
The committee urges the government to consider proposals put forward by the Grattan Institute, the federal opposition and others to generate jobs, support female participation in the workforce and foster accelerated economic growth by investing in a stronger and more accessible childcare system.

Renewable energy as a source of job creation

The committee received several submissions that outline the importance of energy policy and investment in policies to deal with climate change as part of the economic recovery, and to create jobs. For example, the Australian Council of Trade Unions (ACTU) submitted:
Ensuring reliable and sustainable energy to existing industry is critical in avoiding large scale closures. Creating new industries that take advantage of Australia's world-class renewable energy and minerals industries to produce zero emissions metals and mineral products can create thousands of jobs in regional Australia and position our nation at the forefront of low-carbon economic activity.51
The Farmers for Climate Action wrote that 'Australia can emerge from the economic recovery phase a global leader: becoming a renewable energy superpower…'52
Beyond Zero Emissions echoed similar sentiments, stating that a plan to make Australia a renewable energy superpower would 'address the nation's employment and infrastructure needs while reducing greenhouse gases'.53
The Australia Institute in their submission stated that:
Australia's inconsistent, volatile, and fragmented energy policies have been a major source of financial distress and investment uncertainty for the manufacturing sector over the past two decades54 [and that] the reconstruction of our economy as we recover from COVID-19 offers us an historic policy opportunity to green our electricity grid and revitalise our manufacturing sector.55
Dealing with the uncertainty around energy policy will be key to economic recovery and job creation. The committee urges the government to consider new policies which will address uncertainty for investors in renewable energy and facilitate direct job creation in our regions. The committee intends to examine this issue closely in future hearings.

A manufacturing future in Australia

The pandemic has identified serious issues with Australia's international supply chains and local manufacturing capability. The unprecedented disruption by COVID-19 to the global trade of essential medical supplies and other goods of strategic and national interest has highlighted the need for Australia to revitalise its manufacturing sector. While the government has taken some early steps towards this, much more needs to be done to address supply chain issues and create new job opportunities for the 1.5 million unemployed Australians.
President of the ACTU, Ms Michele O'Neil, told the committee in a hearing on 23 June that:
There were also many other manufacturing supply chains that were affected by our lack of domestic capacity. It affected construction and also the energy sector, where there were critical gaps that were exposed by the sudden closure of our borders.56
On 1 October, the government announced a 'Modern Manufacturing Strategy', providing $1.5 billion in funding to 'make Australian manufacturers more competitive, resilient and able to scale-up to take on the world'. The key policy in the strategy is $1.3 billion in grants over 10 years to support projects within six National Manufacturing Priorities.57
However, while the recent investment is welcome, it has been justly criticised for a very slow roll-out of funding,58 and the government's plan remains silent on other untapped opportunities to fix supply chain issues and grow our domestic manufacturing base.
For example, on 8 October 2020, the federal opposition proposed a number of measures that the government ought to consider adopting to aid in the economic recovery and build up the requisite workforce skills to enhance Australia's manufacturing capacity.59 These proposals include implementing a comprehensive National Rail Manufacturing Plan, a Defence Industry Development Strategy, and the introduction of an Australian Skills Guarantee.
An Australian Skills Guarantee would improve the skills-base of Australian workers and provide longer-term productivity improvements for the economy by requiring at least 1 in 10 jobs on all medium and large Commonwealth-funded infrastructure projects and major defence projects to be filled by an apprentice, trainee or cadet.60
The committee urges the government to consider these proposals and lift its commitment to building Australia's manufacturing capability.

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