The debate over what to do next with the economy

11/05/2019 Posted by admin

With revenue falling in the once-booming mining sector, some economists believe lifting skilled migration could boost economic growth and employment opportunities.



And while the budget is in deficit, opinion is divided among economists on whether spending cuts to get it back to surplus would help or harm in the current economic climate.


Michael Kenny reports.


Emeritus Professor Bob Gregory, from the Australian National University in Canberra, was a member of the Reserve Bank board in the 1980s and ’90s.


Professor Gregory looks at today’s national economy and believes Australia is performing better than many of its key trading partners.


However, he sees worrying signs ahead, with economic growth likely to decline in China over the next few years, suggesting it could have a strong flow-on effect to Australia.


He believes successive Labor and Coalition governments have not planned ahead well enough for the challenges the Australian economy could face once the mining boom ends.


“What you’d want to do when the mining boom runs down is essentially have something to take its place, and the obvious thing is more government infrastructure. And, of course, they’ve basically locked themselves into a situation where governments don’t really want to spend that much money.”


Professor Gregory says both sides of Australian politics seem intent on cutting government spending to try to get the federal budget back to surplus.


However, he believes the current $18 billion federal budget deficit is not that bad by international standards and it is the wrong time to make big spending cuts.


“When the economy’s turning down like this, the last thing you really want to do is cut government expenditure dramatically or try to increase taxes. Now they won’t increase taxes, but they will cut government expenditure. So I think that’s a mistake. Government debt in Australia is lower than almost every other country in the world. Australian government debt is very, very low, and that’s not really the issue here. This is not a question of political judgment. Every economist I know, of almost every political persuasion, thinks government debts at the current level are not really a problem.”


A former economist with the International Monetary Fund, Chris Richardson from ACCESS Economics, takes a different view.


Mr Richardson believes cutting government spending and getting the budget into surplus can help a country’s credit rating and, therefore, boost foreign investment.


But while he can see some merit in cutting that spending now, he believes the benefits may not become apparent for some time.


“In the long run, it helps for a range of reasons. In the short run, on the way there, of course it hurts. You see that in the UK at the moment. They needed to get the budget in better shape over there. However, there’s no doubt that the cuts that have gone in have weighed on (economic) growth in the short term in the United Kingdom.”


Professor Gregory, from the ANU, believes economic growth is likely to slow down in Australia over the next few years, regardless of who wins this year’s federal election.


He says, once the mining boom ends, lifting the level of skilled migration could be an effective strategy to boost the Australian economy.


In this year’s federal budget, the Gillard Government opted to maintain Australia’s immigration intake at 190-thousand places in the 2013-2014 financial year.


This included 128,000 skilled migration places.


Professor Gregory believes there could be long-term economic benefits in lifting the annual immigration intake, particularly the skilled migration component.


“If you get a trained engineer where somebody’s paid for all his education, all his undergraduate education, all his training, (and) he’s worked somewhere else for a couple of years and got all the experience, and then you bring him to Australia and he stays in Australia, which is what tends to happen with 457 visas, then I think that’s got to lift the average labour-market quality of Australia.”


That is a view shared by the head of the Centre for Population and Urban Research at Monash University, Bob Birrell.


Dr Birrell has provided advice on immigration issues to both Labor and Coalition governments since the 1980s.


He agrees with plans put forward by Opposition Leader Tony Abbott for 457 visas to become the mainstay of Australia’s immigration program if the Coalition wins election.


“Well, I think there is a case for building our migration policy around employer sponsorship, because employers are sponsoring people to (take up) actual jobs where there clearly is a shortage. So I would go along with the Coalition here. However, there needs to be fundamental reform to establish that the skills employers are sponsoring migrants to actually are in shortage, and, at the present time, there are no regulations in effect to ensure that this is the case.”


Dr Birrell believes whoever wins the next federal election should urgently reform the 457 visa program to ensure it targets industries with genuine skills shortages.


He believes too many 457 visas have been issued in areas like hospitality and accounting, where he says there are enough Australian-trained workers to do the job.


“Recently arrived migrants are effectively getting all the new jobs being created, and this is squeezing out residents, particularly younger people who are trying to get into entry-level jobs, where competition is especially fierce from temporary visa holders: working holidaymakers, students, visitors and so on. I think we need to radically rethink our migration program in the context of the realities of our labour market in the post-mineral investment boom era.”


Professor Gregory, from the ANU, disagrees, saying he believes the skilled-migration program is working reasonably well in its current form.


He believes there could be long-term economic benefits if the next government also encourages more international students to stay in Australia and become citizens.


“I am in favour of skilled immigration, either through the 457 visas or through what’s going on in the universities, where foreign students move from doing a university degree here into Australian citizenship. So I’m sort of in favour of that.”

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