The Australian, 15th January 2015
THE federal government is falling behind on a key election pledge to create one million jobs over five years, in a blow to its economic agenda as experts warn that the target may never be achieved.
Jobs are being created too slowly to reach the goal, just as Tony Abbott names “jobs and families” as his top priorities for the year ahead after a punishing political fight over last year’s budget.
In the next test of the policy, official figures to be released today are tipped to show monthly jobs growth that is too low to meet the government target.
The setback highlights a broader challenge for the nation as the resources boom fades and the economy cools, forcing the government to consider new ways to balance the budget at the same time as it wants to use public spending to shore up growth.
With job insecurity high and job creation below long-term trends, the nation is set for a steady rise in unemployment that could harm consumer confidence and retail sales.
The government admitted yesterday that there were new pressures on tax revenue after The Australian revealed a $2 billion hit to major gas projects as a result of falling oil prices, compounding the problems of falling iron ore and coal prices.
Employers created about 11,700 jobs each month during the government’s first 12 months in a continuation of the relatively weak jobs growth since the global financial crisis.
Mr Abbott needs job creation to jump to 18,000 every month for the next four years to deliver on his promise, a huge rise that economists now consider to be unlikely.
Employment Minister Eric Abetz stood by the jobs pledge yesterday but conceded that it was going to be difficult to deliver and sought to blame Labor and the Greens for preventing new jobs schemes getting through parliament.
The jobs pledge was one of the first priorities in Mr Abbott’s Real Solutions plan before the last election, promising to generate “one million jobs over the next five years” by forging a bigger and more productive economy.
But, with challenges mounting, economists said the government had been “misguided” to make the promise to voters when it needed a lift in economic growth that was yet to materialise.
“It is hard to see it being achieved, even though 200,000 extra jobs a year doesn’t seem much more than what is implied by population growth,” said Melbourne Institute of Applied Economic and Social Research principal research fellow Roger Wilkins.
“Lower oil prices will probably help growth, but unemployment seems to be inexorably edging higher over the next year or two.
“In any case, it is a misguided — and close to meaningless — policy goal.
“ The real policy targets should be things like economic growth, employment-population rates and household income growth.”
Australia had 11.5 million people in jobs when the Coalition came to office so its formal target needs jobs growth of just less than 1.75 per cent a year, said Bank of America Merrill Lynch chief economist Saul Eslake.
“That would imply that real GDP growth needs to be at least 3.25 per cent per annum in order to achieve the government’s promise,” Mr Eslake said.
But, instead, economic growth this year is expected to be 2.5 per cent.
The government trimmed its forecast for employment in last month’s budget update while it warned of higher unemployment.
Mr Eslake warned that trends in productivity could mean the government would have to boost real economic growth to 4 per cent a year to reach the target, well beyond the levels foreseen in the budget.
“The bottom line is I think this will be a difficult promise to achieve, and one that really shouldn’t have been made in the first place,” he said.
Others praised the government for being ambitious and said the nation needed a big target to keep Australians in work as the population increased.
“We haven’t got enough employment growth to soak up all the people entering the workforce,” said HSBC chief economist Paul Bloxham. “I do think the government’s target is achievable.
“It’s a challenging time to get the economy to grow at its trend levels (about 3 per cent a year) but we remain optimistic that growth will continue to rebalance from the mining sector to the non-mining sectors.
“And, as the economy rebalances, employment should continue to grow.”
The latest monthly jobs figures will be released by the Australian Bureau of Statistics today with Deutsche Bank chief economist Adam Boyton tipping the addition of about 10,000 jobs.
The weaker jobs growth could give Labor a powerful political weapon against the government at the next election, although Bill Shorten has not outlined any alternative policies to produce better growth than the government. While business groups and economists note that employers — not governments — actually create jobs, the Prime Minister’s message to voters was that the Coalition’s economic agenda would generate more growth and encourage employers to hire more staff.
Senator Abetz said the promise remained government policy. “The government is confident of reaching its job target of one million jobs over five years,” he said.
“However, we do not underestimate the task and the difficulty in achieving it given the ALP/Green tactics of blocking and delaying our job creating initiatives.”
The budget last May forecast employment growth of 1.5 per cent this financial year but this was cut to 1 per cent in the mid-year update in December.
The gloomier outlook has led the government to scale back its hopes for revenue from personal income tax, at the same time that it expects to collect less company tax than planned because of the slump in iron ore and coal prices.
Assistant Treasurer Josh Frydenberg acknowledged the challenges and hinted at more savings in the May budget to respond.
“The numbers will be reviewed when it comes around to the next budget in May but there’s no doubt this is putting pressure on government revenue,” Mr Frydenberg said.
Labor’s assistant Treasury spokesman Andrew Leigh claimed that meant the government was flagging a “fresh round of cuts” in the budget.
“The Abbott government has today confirmed that its only economic strategy is to cut and keep cutting,” Dr Leigh said.