Plagued by the carbon tax

David Gruen, head of the macroeconomics group in Treasury, said some sensible things at a recent conference about the need to boost productivity by allowing resources to move from firms and industries in decline to those in the ascendancy. Fleetingly, I almost thought that paying millions of dollars of taxpayers’ hard earned funds for macroeconomic research was worthwhile. But it was only a momentary lapse.

These are the same guys that thought it was a good idea to put free pink batts into roofs and build redundant over-priced school halls. Spend big and spend quickly I think was the motto. Lots of misguided Keynesian economic education went into that reckless, wasteful, and counterproductive policy.

But back to the message; it was ironical, as some pointed out, that Gruen was saying these things in Melbourne so close to Point Henry where the government recently splashed out $40 million of our money to Alcoa to bail out an aging aluminium smelter. Gruen was whistling in the wind. The government is certainly not going to buy rational economics at this stage in the electoral cycle.

We can expect more bail outs and lots of handwringing. Bill Shorten (minister in charge of explaining why no future layoffs are due to the carbon tax) said that the government was “ready to assist in any way it can”, when he heard that a family-owned chocolate firm was in trouble. To get real help they would be advised to blame the carbon tax. Where will it end?

There will be no end until the election. Each time a company of any size gets into trouble in the months ahead, for whatever reason, the carbon tax will be there plaguing Ms Gillard and Messrs Swan, Combet, Emerson, and Shorten. And the year ahead is likely to be tough one for many companies.

The labour force figures for June show an economy in a precarious position. Forget the headline seasonally-adjusted unemployment rate which kicked up slightly from 5.1 per cent to a still modest 5.2 per cent and also the reported fall in employment of 27,000. Monthly figures based on a sample survey bounce around; they are not reliable. Trend figures over the past year provide a much surer guide to the state of the labour market.

These figures show that labour force participation is falling, employment growth is anaemic, and hours worked are falling. The trend unemployment rate at 5.1 per cent would be 5.6 per cent if participation had not fallen since June 2011. Employment has grown by only 0.7 per cent over the year and fall-time employment by only half of that. Most significantly, hours worked in the market (non-farm) sector have declined. Comparing June quarter to June quarter, trend hours worked have fallen by 0.2 per cent.

The labour market is a telling indicator of economic health. The participation, employment, and hours worked numbers seem to be much more attuned to the current economic news (and to the Reserve Bank’s loosening of monetary policy) than do the March quarter national account figures, which caused such untutored excitement by depicting an economy growing by over 4 per cent. Really, four per cent growth in output while hours worked fell? Gruen would have no complaints about productivity if that outcome reflected reality rather than fantasy.

The economy is struggling and new mining and carbon taxes are not helpful, even if other important factors are at work. Lay-offs are likely to occur at regular intervals and the carbon tax will be blamed in whole or in part. This will sap the government’s strength and justifiably so. It is hard to feel sympathy for the most incompetent and duplicitous government in Australia’s history, which is infamously intent on deliberately damaging Australia’s competitive position in the world.

A shoe shop in my local shopping strip recently closed. It employed two people. I bought shoes there a few times because they were usually on sale. I miss the shop. I am sure the carbon tax played a part in its demise and I would appreciate anything the government can do. Bill! Bill! Where are you Bill? Carbon tax compensation is required.

Visit Peter Smith’s website badeconomics.com.au 

Peter Smith is the author of Bad Economics (Connor Court). You can purchase copies (post free) here…

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