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Michael Pascoe: Peter Dutton – the high wages economic radical

Opposition Leader Peter Dutton and shadow treasurer Angus Taylor could be viewed as economic radicals if their policies are to be believed, Michael Pascoe writes.

Opposition Leader Peter Dutton and shadow treasurer Angus Taylor could be viewed as economic radicals if their policies are to be believed, Michael Pascoe writes. Photo: AAP

Who would have guessed under Peter Dutton’s preferred image of a conservative nativist lurks an economic radical, prepared to break plenty of eggs to cook a high-wages and high-productivity-growth society?

And then there’s Angus Taylor, a shadow treasurer apparently more aligned with Argentina’s Javier Milei than John Howard.

The caveat here is that we take the Liberal leaders at their word, that they haven’t just been making stuff up for the sake of headlines since the federal budget.

The general non-Murdoch media response, including by this writer, has been to doubt the sincerity of Dutton’s budget reply and whatever Taylor subsequently was trying to do at the National Press Club.

What if?

But what if they really intend to prioritise productivity growth by seriously restricting migration, unwinding industrial relations reform and cutting the number of people on the government payroll?

Combined with Dutton’s pre-existing willingness to bash big business – “boycott Woolworths”, “no billions for billionaires” – a radical scenario emerges based on a harsher, Darwinian approach to Australian capitalism, more in line with the Institute of Public Affairs’ libertarianism.

At the individual enterprise level, slashing the workforce while maintaining the same output sharply lifts productivity. Telstra is hoping to do exactly that by shedding 9 per cent of its workforce.

At the macro level, the quickest way to boost productivity is to get rid of the least productive enterprises, freeing up resources for more productive businesses and increasing their market share.

Cutting through the euphemisms after this month’s Reserve Bank board meeting, that is what the RBA is expecting to see – just don’t try to suggest the bank “needs”, “wants” or “hopes” for that.

That process is under way as marginal businesses run out of the props they enjoyed during the pandemic – the government largesse, the RBA’s low interest rates and the tax office’s forbearance.

Productivity growth

The RBA partly blames low productivity growth on “slowing capital and labour reallocation”, i.e. weaker businesses not failing enough.

To speed that up, restrict the ready availability of labour and allow the market mechanism to do its work: Wages and salaries would be bid up by the most productive businesses that can afford to pay, forcing those who can’t compete to fold.

Macroeconomist Gerard Minack stirred the policy pot in November with a well-argued case that the biggest single cause of our weak productivity growth was Australian businesses swapping labour for capital – “Australia has increasingly relied on increasing labour supply, rather than increasing investment, to drive growth”.

“The impact of high population growth now is very different to the 1950s and 1960s,” Minack wrote.

“In the postwar boom, workers were imported to join unionised workforces often protected from international competition. Now workers are pulled into a deregulated, largely de-unionised, workplace. The population growth in the 1950s and 1960s built cities that could sprawl on land that was cheap. Now land is expensive, and the extended sprawl is creating major negative externalities.

“But most importantly, fast population growth in the postwar boom was accompanied by high investment. Over the past 15 years, rising labour supply wasn’t accompanied by rising investment; instead, rising labour supply substituted for rising investment. Through the past decade non-mining investment has averaged levels only seen before at the nadir of the 1990s recession.”

Migration cuts

Amid the ongoing confusion about exactly what the Coalition intends to do about population growth, the clearest answer Taylor provided at the NPC was when Laura Tingle asked: “Just to confirm, you’re saying a 25 per cent cut in net overseas migration?

Taylor replied: “That’s right.”

That 25 per cent cut presumably is from what the NOM (net overseas migration) would otherwise be. It is forecast to return to historical trend of 235,000 in 2025-26.

There has been no clarification of exactly who will no longer be allowed in beyond a trimming of our humanitarian intake – the government is already cutting back on foreign students.

Family reunion visas would be very hard to significantly slash – they are mainly for partners and children with parents already facing waiting lists stretching for many years.

Which leaves backpackers and skilled workers. You can rely on the National Party to prevent reductions in rural workers and Dutton is exempting construction workers – leaving the cuts to come from the other city jobs dependent on the skills of temporary and permanent migrants when the hours students can work are being cut, too.

Higher pay pressure

Hey presto, welcome supply-and-demand increasing pressure for higher pay, the pressure that has increased wages for the past two years.

At the same time, Dutton wants to roll back Labor’s industrial relations reforms.

In Minack’s high migration scenario, that could help keep wages growth down – low wages growth being Coalition policy during its previous nine years in power. But an intentional rationing of workers would change the equation.

Thus – if Dutton and Taylor mean what they say – Australia would embark on a radical formula for higher wages and higher productivity.

Work in progress

As usual though, there are complications with a simple solution for a complex problem, starting with picking the target industries to be denied the workers they’ve become used to.

Our health and care industries are mightily dependent on a stream of migrants and are already short staffed. It would be radical indeed for a Dutton government to reduce staff levels in hospitals, nursing homes and child care.

The Coalition’s suggestion that the shortage would be solved by encouraging pensioners to stay in the workforce is fanciful, at best. The ABS has shown the proportion of people aged 65-plus in the workforce has remained fairly stable over the past five years despite the pension age being increased to 67. We’re already at enjoying record participation rates.

(If Taylor is suddenly interested in high effective marginal tax rates, he should have a look at the interaction of JobKeeper and family tax benefits with an extra shift or several – it can mean effective tax rates of 100 per cent.)

As for waving the old industrial relations red herring, the Coalition seems stuck somewhere back in the early ’80s when union membership was a thing and industrial action was relatively common. Union membership continues to slide, is increasingly rare in the private sector, the only thing rarer being strikes.

 

Home truths

Remember this migration flag has primarily been run up the pole on the basis of providing more housing, Taylor claiming the NOM cuts would “free up” 100,000 homes. Turns out that’s largely a matter of fancy over fact as well, according to Honorary Professor of Demography, Peter McDonald.

The greatest irony this month though was in Taylor’s NPC performance when he said: “If our policies, of course, were implemented tomorrow, or if they’d been indeed implemented when Labor came to power, we’d have seen many more houses freed up and a much better balance between housing and migration.”

The problem with the NOM surge over the past two years is that the Coalition’s policies were implemented when Labor came to power.

“In 2021-22 the Coalition government introduced extraordinary policies to boost … numbers,” says Abul Rizvi, a former deputy secretary of the Department of Immigration. “Policies such as unlimited work rights for students, fee-free student and working holiday-maker applications and a special Covid visa.

“The message to industry was to go forth and expand as rapidly as possible and hang the consequences. So it did. Not only did universities go berserk recruiting as many students as they could, but private providers also boomed as the regulators were in no position to police quality.”

The Albanese government was too slow to undo those policies and now Australia faces the possibility of a radical agenda after the next election – if Dutton and Taylor mean what they say.

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