My Blog

Author: annamations

  • The Stage 3 tax cuts will make our bad tax system worse

    The Stage 3 tax cuts will make our bad tax system worse

    by Jim Stanford in The Conversation

    Jim Stanford

    Share

    Originally published in The Conversation on December 11, 2023

    Australia has one of the weakest tax systems for redistribution among industrial nations, and as Dr Jim Stanford writes, the Stage 3 tax cuts will make it worse.

    One of the chief purposes of government payments and taxes is to redistribute income, which is why tax rates are higher on taxpayers with higher incomes and payments tend to get directed to people on lower incomes.

    Australia’s tax rates range from a low of zero cents in the dollar to a high of 45 cents, and payments including JobSeeker, the age pension, and child benefits which are limited to recipients whose income is below certain thresholds.

    In this way, every nation’s tax and transfer system cuts inequality, some more than others.

    Which is why I was surprised when I used the latest Organisation for Economic Cooperation and Development (OECD) data to calculate how much.

    The OECD measures inequality using what’s known as a gini coefficient. This is a number on a scale between zero and 1 where zero represents complete equality (everyone receives the same income) and 1 represents complete inequality (one person has all the income).

    The higher the number, the higher the higher the inequality.

    Australia is far from the most equal of OECD nations – it is 21st out of the 37 countries for which the OECD collects data, but what really interested me is what Australia’s tax and transfer system does to equalise things.

    And the answer is: surprisingly little compared to other OECD countries.

    Australia’s system does little to temper inequality

    The graph below displays the number of points by which each country’s tax and transfer system reduces its gini coefficient. The ranking indicates the extent to which the system equalises incomes.

    The OECD country whose system most strongly redistributes incomes is Finland, whose tax and transfer rules cut its gini coefficient by 0.25 points.

    The country with the weakest redistribution of incomes is Mexico which only cuts inequality by 0.02 points.

    Australia is the 8th weakest, cutting inequality by only 0.12 points.

    Apart from Mexico, among OECD members only Chile, Costa Rica, Korea, Switzerland, Türkiye and Iceland do a worse job of redistributing incomes.

    What is really odd is that, before redistribution, Australia’s income distribution is pretty good compared to other OECD countries – the tenth best.

    It’s not that Australia’s systems don’t reduce inequality, it’s that other country’s systems do it more.

    Of the OECD members who do less than Australia, four are emerging economies: Chile, Costa Rica, Mexico, and Türkiye. Like most developing countries, they have low taxes, weak social protections and poor tax-gathering systems.

    Indeed, in Chile and Mexico, taxes and transfers do almost nothing to moderate extreme inequality.

    The other three countries ranked below Australia – Iceland, Switzerland, and South Korea – boast unusually equal distributions of market incomes. Each is among the four most equal OECD countries by market income, and each is considerably more equal than Australia.

    Australia ‘less developed’ when it comes to redistribution

    This makes Australia’s weak redistribution system more typical of a low-income emerging economy than an advanced industrial democracy.

    Even Canada, the United States, the United Kingdom and New Zealand do a better job of redistributing income than Australia.

    This new data enhances concerns about the impact of planned Stage 3 tax cuts. By returning proportionately more to high earners than low earners these will further erode the redistributive impact of Australia’s tax system.

    It also highlights the consequences of Australia’s relatively weak payments programs, including JobSeeker which on one measure is the second-weakest in the OECD. It’s an understatement to say we’ve room for improvement.


    You might also like

    Commonwealth Budget 2025-2026: Our analysis

    by Fiona Macdonald

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget, focusing on key areas for workers, working lives, and labour markets. As expected with a Federal election looming, the budget is not a horror one of austerity. However, the 2025-2026 budget is characterised by the absence of any significant initiatives. There is

  • Higher exports prices improve the budget, but the Stage 3 tax cuts remain the wrong tax at the wrong time

    Higher exports prices improve the budget, but the Stage 3 tax cuts remain the wrong tax at the wrong time

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on December 14, 2023

    As the Budget outlook improves, with most of the benefits of Stage 3 tax cuts going to those earing over $120,000, over 80% of workers will be short-changed

    Yesterday’s mid-year economic and fiscal outlook (MYEFO) provided some pleasing news for the Treasurer, Jim Chalmers. But higher revenue does not mean a stronger economy nor that households are better off.

    While the Treasurer was releasing the latest budget numbers the annual figures for median earnings were released by the Bureau of Statistics.

    These figures showed that the median weekly earnings in August this year were $1,300 – a rise of 4.2% from last year, which was less than the 5.4% increase in inflation.

    That weekly amount translates to $67,600 in annual earnings.

    People earning that amount will get just $565 from the Stage 3 tax cuts (0.8%) while someone on $200,000 – well in the top 10% of earners will get a 4.5% cut worth $9,075.

    The Treasurer told ABC 730 on Wednesday night that the government has not changed its position on Stage 3 and that “We think there is an important role for returning bracket creep where governments can afford to do that.”

    The problem is the Stage 3 cuts are mostly focused at rewarding those on high incomes, who are least affected by bracket creep.

    If the Government was truly worried about using the bonus revenue from higher export prices to assist low and middle-income earners it would care more about those on the median income of $66,700 than those in the top tax bracket and top 10% of income.


    You might also like

    Commonwealth Budget 2025-2026: Our analysis

    by Fiona Macdonald

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget, focusing on key areas for workers, working lives, and labour markets. As expected with a Federal election looming, the budget is not a horror one of austerity. However, the 2025-2026 budget is characterised by the absence of any significant initiatives. There is

  • Paying for Collective Bargaining

    Paying for Collective Bargaining

    by Jim Stanford

    Share

    Recent labour law reforms in Australia have focused attention on the crucial role played by collective bargaining in achieving higher wages, safer working conditions, and better job security.

    New provisions contained in both the Secure Jobs Better Pay (2022) and Closing Loopholes (2023) legislation will expand the scope for collective bargaining (including more opportunities for bargaining at a multi-employer level), make it harder for employers to evade collective bargaining, and empower union delegates to fulfil their responsibilities in workplaces to administer and enforce collective agreements.

    However, one important challenge for Australia’s collective bargaining system, that has not been addressed by these reforms, is how to pay for collective bargaining. The infrastructure of representation, bargaining, implementation and enforcement requires ongoing commitment of people and resources, from both the union and the employer sides of the relationship.

    In Australia at present, the workers’ side of this infrastructure is dependent on voluntary union dues contributed by individuals who choose to join a union in their industry. No collective system of union security or dues collection (such as closed or agency shop arrangements, dues preferences, or bargaining fees) are presently allowed under Australian law. Moreover, Australian law fully protects the ability of individual workers to ‘free ride’ on the benefits and protections negotiated by unions in their workplace: every provision of a collective agreement must be provided to all workers in a defined bargaining unit (whether they are members of the union that negotiated them or not). From a perspective of narrow self-interest, this system discourages union membership — and in turn starves the collective bargaining system of the resources it needs to be viable.

    In this article published in The Conversation, Centre for Future Work Director Jim Stanford discusses the nature of this ‘free rider problem,’ and highlights how the treatment of this problem varies wildly between business and union applications. Legal contracts which enforce collective revenue solutions to free-rider problems are common and fully acceptable in many common applications: such as residential strata arrangements, the governance of joint stock corporations, and even government tax collections. Where unions are concerned, however, the law prevents workers from making and enforcing a collective decision to jointly fund the apparatus of collective bargaining, to the shared detriment of workers who consequently cannot exercise collective bargaining power to improve their employment relationship. The rhetoric of ‘individual choice’ is applied selectively to industrial relations; no owner of a strata unit, or shareholder in a corporation, has the ‘free choice’ to refuse to pay the normal costs and obligations associated with those arrangements.

    Australia’s restrictions on union security and collective dues arrangements are uniquely restrictive among industrial countries; they are similar to the rules in so-called ‘right-to-work’ states in the U.S., where union representation has fallen to the low single digits. Free riding has been an important factor in the long-term erosion of union density in Australia: most recent data indicates that just 12.5% of employees in Australia are presently union members. Workers with greater awareness of the importance of collective bargaining to their long-term prosperity will support their unions, even though they are legally entitled to all the benefits of a collective agreement whether they join or not. But the current laws discourage this act of collective solidarity, and collective bargaining has been eroding accordingly. At present just 15% of workers in Australia are covered by an active enterprise agreement (and less than 10% in the private sector). The erosion of collective bargaining has contributed to wage stagnation, growing inequality, and job insecurity.

    Dr Stanford’s Conversation article has been selected for inclusion in the new anthology, 2023: A Year of Consequence, published by Thames & Hudson, and edited by Justin Bergman (International Editor of The Conversation). The book contains several essays published by The Conversation in 2023 that are judged to have contributed most to public policy dialogue in Australia over the past year.

    Further information on the extent and consequences of free riding in Australian collective bargaining, and five different strategies for addressing this problem (based on the variety of policies implemented in other industrial countries where collective bargaining is better-resourced, and hence stronger and more effective), are provided in Dr Stanford’s recent scholarly article in Labour and Industry, titled “International approaches to solving the ‘free rider’ problem in industrial relations.” Click below to see the full article.


    Related documents



    Attachment

    Related research



    Submission to the Senate Education and Employment Legislation Committee Inquiry into the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023



    Full report



    Collective Bargaining and Wage Growth in Australia



    Full report

    You might also like

  • Solidarity Research for Union Renewal

    Solidarity Research for Union Renewal

    Share

    A Symposium of Researchers and Trade Unionists co-hosted by the Centre for Future Work and Unions WA.

    • Tuesday 30 January 2024
    • 5:30pm for 6pm start
    • UnionsWA, CSA Building, 445 Hay Street Perth

    To coincide with the Association of Industrial Relations Academics of Australia and New Zealand (AIRAANZ) holding its 2024 conference in Perth, the Centre for Future Work and Unions WA are pleased to present a unique and important event for union members, supporters, and activists.

    ‘Solidarity research for Union Renewal’ brings together cutting-edge researchers and unionists to share their knowledge and wisdom about renewing unions and building solidarity between all workers. Find out how:

    • Canadian Health Workers restored their jobs to the public sector
    • African unions have fought back against Multinationals
    • Australian unions are organising and advocating for migrant workers

    The evening will be chaired by Professor Emeritus David Peetz, the Laurie Carmichael Distinguished Research Fellow at the Centre for Future Work – who will also be presenting his research on Developing Union Delegates

    This event is FREE, with refreshments, but we need you to register for a ticket here: https://www.unionswa.com.au/solidarity_research_for_union_renewal.

    And here is the full program of speakers and topics.

    See you in Perth!


    Related documents



    Attachment

    You might also like

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • After two years of profit-led inflation, workers deserve the pay rises they are getting

    After two years of profit-led inflation, workers deserve the pay rises they are getting

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on November 16, 2023

    The wage rises for low-paid workers on awards and those working in aged care helped drive the strong wage growth.

    The latest wage growth figures showed that workers’ wages for the past six months have grown faster than inflation. As Labour Market Policy Director, Greg Jericho writes in his Guardian Australia column, this should be celebrated. We need to shed our fear of wage rises. For too long any sign of increasing wage growth has been viewed as something to be stomped on while ever-increasing corporate profits have been cheered.

    Since the start of the pandemic, workers’ purchasing power has crashed, and the only way to recover the lost real wages is through wages increasing faster than inflation.

    The 1.4% growth of private-sector wages in the September quarter was driven largely off the back of the Fair Work Commission’s decision to increase Award wages by 5.75% and the decision to give aged-care workers a 15% pay rise.

    As a result around 40% of those who gained a pay rise in the September quarter received one greater than 4%.

    One other pleasing sign has been the relaxation of public sector wage caps has allowed those workers around the country to get a fairer pay rise, but their increases remain well below that of the private-sector.

    The profit-led inflation since 2021 hurt workers, and it now is only fair that they receive some recompense. After a decade of ever falling wage growth and a pandemic and recover that smashed real wages, it is very good news that workers are finally getting their fair reward.


    You might also like

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • The Government needs to act on Stage 3 as the RBA warns about wealthy households spending

    The Government needs to act on Stage 3 as the RBA warns about wealthy households spending

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on November 9, 2023

    The RBA made it clear one group continues to do well, and continue to spend – and they are also the ones who are about to get a massive tax cut.

    The Reserve Bank’s decision to raise interest rates on Tuesday lacked any clear reasoning.

    When compared with other periods such as during the mining boom, when household spending was growing fast and real wages were surging, we can see that the economy at the moment is much weaker. Households are now cutting back on luxuries as their real wages fall.

    But the RBA pointed out that one group of Australians are doing OK – those with high income and wealth. Those with large savings buffers and who are also enjoying the increased wealth from rising house prices are still spending.

    This is also the group who are about to be handed the biggest income tax cut in history. The Reserve Bank has made it clear that allowing Stage 3 to go forward in its current form will only fuel inflation and likely result in higher interest rates for all.

    With a Reserve Bank desperate to use any excused to raise rates and slow the economy even as it already slows, the Government needs to amend the Stage 3 cuts to deliver greater benefit to low-middle income households who have suffered the most from the rising cost of living and interest rates, and less to those who are already doing well and for whom a potential $9,075 tax cut would just put more fuel on the inflation fire.


    You might also like

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • When the prices of necessities are rising fast, the RBA does not need to hit households with another rate rise

    When the prices of necessities are rising fast, the RBA does not need to hit households with another rate rise

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on November 2, 2023

    Cost of living rose by more than inflation because of interest rate rises. Another rate rise would only cause more unnecessary pain.

    In the past week, the likelihood of the Reserve Bank raising the cash rate to 4.35% has gone from about 20% prior to last week’s inflation figures coming out, to now an even-money bet.

    But when you look at the cost of living figures out this week it is clear that households are already having to reduce their spending on non-discretionary items.

    Out of the 14 biggest contributors to inflation, 10 were non-discretionary items.

    At this point we should note the comments of the secretary of the Treasury, Steven Kennedy, last week in Senate estimates. He was asked about the pathway to a “soft landing” – ie where inflation falls without us going into a recession.

    He noted that chances of a soft landing were made harder by recent rises in oil prices because “on the one hand, it will increase headline inflation by raising petrol prices. On the other hand, it may well reduce growth and see other prices fall because people have less to spend. At least in the short term, expenditure on petrol is not very discretionary.”

    When the prices of things you can’t avoid paying for rise faster than others, then that obviously reduces your ability to spend elsewhere. In this way petrol, electricity and rental price rises have the same impact as do interest rate rises.

    The most recent figures of the volume of retail spending will come out tomorrow, but we know that the volume has been falling, and is now back to pre-pandemic trend levels:

    This of course is what you would expect – when the cost of non-retail items such as petrol, mortgages, rents, electricity, property rates, medical services and insurance are rising, you are going to buy less in the shops.

    Since March last year the cost of mortgages has gone up 114%. Does the Reserve Bank think households haven’t really noticed that?

    Even you if discount the record low rates during the pandemic, the cost of mortgages is now about 70% higher than it was at the end of 2019. Since then, wages have risen only about 10.5%.

    Another rate rise is not going to do anything other than add to the cost of necessities. It would not so much reduce inflation as increase the cost of living and hit households whose wages and incomes continue to be worth less than they were a year ago.


    You might also like

  • The Reserve Bank should not raise rates on Melbourne Cup Day

    The Reserve Bank should not raise rates on Melbourne Cup Day

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on October 26, 2023

    Inflation is being driven by things unaffected by interest rate, so there is no reason for the RBA to raise rates in November

    The latest CPI figures showed inflation grew 5.4%, down from 6% in the June quarter and almost a third below the peak of 7.8% at the end of last year. And yet commentators seem desperate for the Reserve Bank of Australia to raise interest rates next month to show it is tough on inflation. But raising rates now would not be tough, it would just be cruel.

    The annual growth of inflation is falling quite quickly – down from 7.8% at the end of last year. But because the quarterly growth of inflation rose in the September quarter, a numbe rof commentators and economists have been suggesting that the Reserve Bank should raise interest rates in two months.

    But when you examine the drivers of inflation in the September quarter, there is little that would have an impact from higher interest rates.

    Automotive fuel prices accounted for 20% of the growth in inflation in September – that is completely unaffected by rate rises given that it was all due to higher world oil prices due to OPECD restricting supply. Similarly rental prices, electricity, property rates and charges, insurance, tobacco and beer prices have nothing to do with interest rates. Even the cost of building a new home is driven mostly by the increased cost of construction materials from overseas.

    Crucially in the September quarter the cost of “non-discretionary item” rose 1.4% while the cost of “discretionary” item rose just 0.7%. Non-discretionary items are things which you cannot avoid paying (at least in the short-term). In effect those price rises have the same impact on consumer spending as do rate rises – they reduce the ability of people to spend money on things in shops and on discretionary services.

    Had the RBA raised interest rates more in the September quarter there would have been negligible impact on the main drivers of inflation, raising them in November due to these latest figures would just be cruel and hurting people whose real wages continue to fall.


    You might also like

  • Australia is an energy super power, we need to use that power for good

    Australia is an energy super power, we need to use that power for good

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on October 19, 2023

    Australia is already an energy superpower, but our governments have lacked the courage to use that power to reduce greenhouse gas emissions

    As the Australian Government continues to pursue policies notionally designed to reduce our greenhouse gas emissions, a great store has been placed in Australia becoming a “renewable energy superpower”. However as Labour Market and Fiscal Policy Director, Greg Jericho, notes in his Guardian Australia column, Australia already is an energy superpower. But we fail to use that power for good.

    Australia is either the world’s largest or second-largest exporter of metallurgical coal, thermal coal and LNG. And yet we have not sought to use this power to pursue policies that would reduce demand for fossil fuels and transition the world towards renewable energy. Instead, we placate mining companies and give no timeline to end coal and gas use. We continue to approve new coal mines and fail to insert a climate-change trigger into environment protection legislation that determines whether new mines can be approved.

    Given September this year was the hottest September on record, after August this year being the hottest August on record, July this year being the hottest July on record and June this year being the hottest June on record, the time for action that reduces Australia’s and the world’s emissions is urgent and critical.

    Climate change is one area where Australia can legitimately take a leading role in global affairs, our power as an energy producer and supplier of fossil fuels which continue to exacerbate climate change demands we show this leadership.

    For too long Australian governments have cowered before mining companies, now it’s the time to realise we have the minerals they want now and in the future when renewable energy becomes the dominant power and thus we can dictate terms.

    Leadership requires the grasping of power and using it for good.


    You might also like

    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

    Australia’s Gas Use On The Slide

    by Ketan Joshi

    The Federal Government has released a new report that includes projections of how much gas Australia is set to use over the coming decades. There is no ambiguity in its message: Australia reached peak gas years ago, and it’s all downhill from here:

  • The latest report from the IMF highlights the need for full-employment to be the aim of the government and the Reserve Bank

    The latest report from the IMF highlights the need for full-employment to be the aim of the government and the Reserve Bank

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on October 12, 2023

    If the economy grows as slowly as the IMF predicts it will for the next 2 years, Australia will be lucky to avoid a recession.

    The IMF’s latest World Economic Outlook is mostly framed around trying to thread the needle of reducing inflation and cost of living rises and not crashing the economy while doing so.

    And while overall the IMF suggests the world economy is in for a “soft landing” the picture it paints for Australia is of a tough year ahead. Policy director Greg Jericho notes in his Guardian Australia column that the IMF has downgraded its expectation for growth next year from an already bad 1.7% to a historically awful 1.2%.

    Were Australia’s economy to grow this slowly through the year and avoid a recession it would be the first time that has happened. The IMF also predicts that 2025 will grow by just 2.0%. Were that to occur, it would be the first time on record that Australia’s economy has gone 3 consecutive calendar years without growth above 2%. That is hardly a “soft landing”

    The IMF also now predict unemployment will rise quicker than it expected would be the case in its previous outlook in April.

    The report highlights the need for the government and the Reserve Bank to work to deliver full employment. The current settings have the nation on course to grow so slowly for so long that the risk of the economy stalling are rising precipitously.


    You might also like