Tonight is federal budget night – which presents the most comprehensive picture of where the Government is going with fiscal policy and the Treasury’s estimate of how the economy is travelling. So for a macroeconomist like me it is a biggest night in the annual calendar. But I am more interested in parrots and spotted owls at the moment. What? Yes, I guess it is escapism … to avoid the hysterical public debate that has surrounded this budget. The economic falsehoods, the outright lies, the duplicity and the all of that. But I cannot escape it because I have a newspaper opinion piece to write on the Budget by 20:00 tonight. So, given that, here is my take on the budget and then …. I can get back to the birds!
More press hysteria has accompanied this Budget than any I can recall. The public debate has been sidetracked from the real issues by erroneous claims like “the deficit blowout will drown our children in debt” and the rest of the rubbish.
The Budget has now concentrated our minds on the real issues. GDP growth will be negative this year which will force unemployment to peak at 8.5% in 2011.
We should judge the Budget by how effectively it minimises these negative impacts.
Recessions occur when waning spending leaves unsold output. The resulting unemployment imposes huge costs on individuals, their families and, indirectly, all of us (via increased crime, etc). The sharp spikes in unemployment that accompany recessions take years to reverse.
The $58 billion Federal deficit aims to fill these spending gaps and underwrite employment and income growth. Deficits are good! The Budget demonstrates leadership in this regard by increasing infrastructure spending on future educational and productive capacity while also increasing pensions and introducing maternity leave.
Although the dollar value of the deficit looks “big” it is still only 4.9% of GDP compared to 4.1% during the 1991 recession.
Concern over the “record deficit” is misplaced. The deficit has to be whatever it takes to fill the spending gap. Focusing on the size of the deficit misses the point that it is merely the accounting consequence of protecting jobs when private spending declines.
In 1991, the Government reacted slowly (remember Keating’s “soft landing” boast) which prolonged the recession and created higher unemployment than was necessary.
The size of this deficit signifies the alacrity of the Government’s response. Their quick intervention has already reduced the severity of the downturn. The budget deficit announced last night will further help our economy ride the global crisis.
The public infrastructure investment will underwrite jobs and provide future benefits to regional Australia. It also shows the recent obsession with surpluses represented a decade of lost opportunity and a failure of fiscal leadership. The surpluses squeezed private purchasing power and forced households into increasing levels of indebtedness. That growth strategy was always going to be unsustainable – and we have learned that the hard way
Several budget initiatives will reverse the shameful bias of the previous government towards high income earners. Increasing pensions and trimming back middle-class welfare will better rebalance our priorities.
It was disappointing that no direct public sector job creation was foreshadowed which would lower unemployment more quickly.
But it is still a self-conscious Government – insisting the deficit will be “temporary”. Attempts to get the budget back into surplus will prove unsustainable. The private sector typically desires to save which creates spending gaps that have to be filled by deficits. The recent debt binge was historically atypical. So on-going deficits will become the norm – as it should be.
Continuous deficits were mainstream thinking until economic rationalism took over. Fortunately, the global crisis has exposed the failures of the free market experiment and governments around the world are now using deficits responsibly to steer their economies back to sustainable growth.
Overall, the budget is not expansionary enough given the already high unemployment.
Will our children be burdened by the debt? Don’t even worry about that nonsense.
Statement from the Treasurer
I listened carefully to the speech tonight and I thought I picked this bit up but I might be mistaken. Can anyone confirm it?
….. Our actions are expected to support up to 210,000 jobs, and reduce the peak in the unemployment rate by 1 percentage points below the double digit peak it would reach if we listened to those who said we should do nothing.
The Government believes in those 210,000 Australians and we won’t cut them loose.
We understand the dignity of work, and the cost of being without it.
Hold on a minute, we need more jobs than that Kevin!
Then I noticed some hasty scribbling, a pocket calculator or two coming out, Peter Costello looking ashamed, and the Treasurer got up again and resumed his speech.
People of Australia, we actually will introduce policies to support up to 1 million jobs or more if necessary and create full employment with an unemployment rate of 2 per cent by the end of this year. While the other side of politics have stood by and allowed 10 per cent of more of our valuable labour resources to go to waste we will not do that.
The Government believes in those 210,000 … sorry MORE THAN A MILLION Australians and we won’t cut them loose.
We understand the dignity of work, and the cost of being without it.
With that understanding, the Federal government has taken advice from the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle who have done extensive research on the problem of unemployment. Much more detailed work than the Government’s own departments have done. The latter have been occupied working on plans to discipline the unemployed and force then into useless training schemes outside of the paid work context.
Well not anymore! CofFEE has calculated that 557,000 full-time equivalent jobs (80 per cent in the public sector and 20 in the private as a result of the boost) would cost us $8.3 billion per annum. That will push the deficit up to just over 5 per cent of GDP. Full employment never came so cheap.
So now I want to announce to the Australian people that the Federal Government will offer a job at the federal minimum wage to anyone who wants to work and currently cannot find it. All you have to do is turn up tomorrow morning at your local depot to start work. If we haven’t any work ready for you to do immediately, we will have soon! In the meantime your pay starts tomorrow. Ring your local office for details or look in tomorrow’s newspapers. We are calling this initiative the Job Guarantee and believe it will provide a safety net for those who lose their jobs.
It sure sounded like that to me anyway. Great Government! Great leadership. First budget in years that I have been happy with. And don’t bother writing in to suggest hearing or eye examinations.
Anyway, it is back to the birds!
Parrots versus jobs .. Jobs versus owls!
A few thousand birds at most and around 320 direct jobs and 537 indirect jobs in the Riverina area of NSW. That is the big showdown which is pitting the NSW State Government against the Federal Government, the National Parks Association against the Mayor of Deniliquin (a small town in south western NSW) and the Timber industry against the conservationists.
This delightful looking bird is a Superb Parrot and there are only around 5000 breeding pairs left. They face declining habitat and threats from other birds. They will become extinct unless there is a species management scheme put in place.
Along comes Midnight Oil’s Peter Garrett, aka the Federal Environment minister who has put a ban on logging in certain Murray redgum forests where the Superb Parrot likes to live.
The towns that are supported by the timber industry in that area say that their towns will die if they are not allowed free access to these old forests. The Mayor of Deniliquin said:
Peter Garrett should think of the people that he is putting out of jobs in ruining the inland of Australia – he is not concerned about the cities, he is not concerned about the coastal area … “He and his government at the moment are working on a witch-hunt to try and cruel the central parts of NSW.
The NSW Forest Products Association say that all is well and they leave a fringe of trees for the parrots.
But it is also likely that if a carefully designed transition plan is put in place the region could increase its overall income via ecotourism. There is evidence that the forest depletion will kill the prospects of the timber industry anyway along with the parrot.
In these situations, emotions run high but alternatives are always available if there is sufficient public sector adjustment support which has to include direct job creation.
Further, environmentally concerned people who do not live in these areas should not be isolated from the adjustment pain. Given that the State Government will have to be involved in any adjustment process and is revenue-constrained (because it is not the sovereign issuer of the AUD), then it may have to raise taxes to fund adjustment programs. City folk who do not face job loss should be prepared to pay an appropriately scaled timber adjustment levy which could underwrite the lost incomes for the timber workers while new tourism and other industries are constructed in these areas under stress.
The Superb Parrot debate rehearses the same debate that communities around the world have struggled with for years. When I read the Superb Parrot story, I recalled the huge struggle in the US over the last twenty years to protect an owl! There has been a famous “bird against job” conflict raging for years on the North-west Pacific coast of the USA. There is a very rare habitat of Northern spotted owls who live in the native forests there and it just so happens that the same forests supported a very lucrative timber industry.
As an aside, one of the reasons the Northwest was considered attractive in the first place is that the dust-bowl refugees called it “the promised land” and migrated there in droves to feed their families. This suggests that if proper regional development policies were in place populations would not feel the need to move and plunder new areas. But that is another story.
Anyway, the problem for the owl is that they are very fussy about where they live and just happen to relish the surroundings that the old growth forests in this area provide. The unrestricted logging up until the injunctions just about wiped this species and a number of other species that rely on the environment in this region out. Continued logging would have destroyed the fragile biodiversity of the region.
The US Fish and Wildlife Service federally listed the northern spotted owl as a threatened species in 1990. According to the serveice “In 1992, areas of critical habitat were designated to further protect this subspecies on federal lands. A draft recovery plan was written in 2007 and has not been finalized yet.” This decision was challenged by some local Oregon communities and ended up in the US Supreme Court. The Supreme Court ruled in favour of the USFWS and this stopped logging on federal lands which was deemed to be of danger to the habitat of the owl.
It is clear that there was economic dislocation after the decision as logging declined in the area. The job losses initially were significant and there was no clear federal plan in place to provide alternative income earning opportunities. However, over time, viable new industries have emerged to replace the timber industries in the Northwest.
The research evidence also does not support the doomsday scenarios suggested by logging interests. The ECONorthwest report found:
Despite years of rhetoric and misinformation, national and regional economies are not dependent on logging National Forests. The most often cited misconception is that the regional economy of the Pacific Northwest declined after a court injunction and related events reduced National Forest logging … In fact, instead of collapsing, the region’s economy expanded and the Pacific Northwest weathered virtually unscathed the national economic recession that occurred at the same time as the court injunction. Today economic dependence on logging is minimal in each state and currently not one state is as dependent on logging as Oregon was in its peak logging year of 1988. The day when National Forest logging was the base of economic development has long gone. Relying on logging of National Forests to produce a vibrant economy will harm real economic benefits and lose jobs … Forest Service economists estimate that timber only accounts for 2.7 percent of the total values of goods and services derived from the National Forests while recreation and fish and wildlife habitat produce 84.6 percent. However, this only tells part of the story. When the value of clean water, carbon sequestration and the protection of wild forests is taken into account it becomes clear that not logging National Forests creates even more economic benefit that previously measured.
The point is if we want to save habitat then we have to turn the parrots and their habitats into jobs. There doesn’t have to be a trade-off. Analysis of regional adjustments across the globe suggest that these dilemmas are not zero-sum games.The task is to look for creative solutions that can turn the parrots into employment. And my work on regional restructuring (mostly coal at present) leads one to consider the concept of a just transition.
Economic restructuring at a regional level is painful. In a Commissioned Report that I co-authored modelling the transitions away from coal-fired power to renewables, we noted that a just transition policy recognises that people and ecology are both important. It recognises that ‘business-as-usual’ and high risk technological fixes to unsustainable economic activity are not credible options for confronting climate change. We could have talked about the so-called dominance of timber industries over native habitat if we had have been talking about the Superb Parrots.
A just transition ensures that the costs of economic restructuring and the shift to sustainability do not fall on workers in targeted industries and their communities. A just transition in any threated region requires government intervention and community partnerships to create the regulatory framework, infrastructure and market incentives for the creation of well-paid, secure, healthy, satisfying environmentally-friendly jobs with particular attention to appropriately meeting the needs of affected workers and their communities.
A just transition requires the governments to play a critical role in fostering the adjustment such that it protects local communities and environments during change. Government support must include:
- Assistance for both displaced workers and for contractors;
- Adequate notice of workplace change and closures;
- Consultation and full engagement of relevant unions;
- Support for innovation and partnerships for new local industries, research and development and infrastructure investments;
- Training and alternative employment tailored to local and individual needs and opportunities;
- Special targeted support for older, disabled and less educated workers;
- Relocation assistance for displaced workers;
- Income maintenance, redundancy entitlements and retraining allowances;
- Cheap loans and subsidies for new industries and employers;
- Compensation and equipment buy-outs for contractors;
- Assistance programs extended to workers employed by contractors;
- A just transition requires investment in training programs and apprenticeships to create a highly trained ‘green’ workforce;
- The introduction of a Job Guarantee to provide continuous employment for all those without work.
So from my perspective jobs are very important but so are the habitats that support endangered species. I don’t really want to be part of a generation of humans that disregard the flora and fauna and value it less than private profit. But then I also value jobs and require that all people have access to decent work wherever they choose to live. If there are no private job opportunities in some areas then the public sector has to stand ready to provide the vital employment. So I never see these disputes in terms of “parrots versus jobs”. We can have both with a little creativity and a lot of public sector support.
That is what Peter Garrett has to provide the timber communities so we can enjoy the Superb Parrot for longer. The Greens and supporters are strong on what needs to be protected but are often not very conversant with what needs to be done to support the economic base (that is, jobs) in a region they want to save. We just have to get a public debate going where we can construct these issues more creatively and see that all sides can win.
Anyway, thinking about the Superb Parrot and the Northern Spotted Owl certainly beat thinking about the budget. Don’t you think?
I also did promise some free giveaways if you came back but I ran out!