The 2021 budget must prioritise real jobs and lifting all incomes

By Joe Montero

It is a good time to consider the future of the Australian economy in the post-Covid reality. We are also on the eve of this year’s federal budget, which could be an opportunity to take an important step forward.

The question is what is most important now. This is where the priorities should lie.

It is no secret that the Australian economy is sick. It was sick before Covid hit, and it is now sicker. The  problem is systemic. much of this is acknowledged, although not everyone sees that the problem is systemic. No amount of pep talk and claiming that everything is alright and a recovery under way, is going to fix it.

So, what is the systemic  problem? It is that the process of combining labour and capital to create value is not working on all cylinders. The cause? A general substitution of labour by technology, which has lowered the per unit value and return on investment.

When this happens, there is a turn to maximising quantity as cheaply as possible.  Output increases to the point where it floods the market. This increase in output takes place because the per unit value falls and per unit return on the investment falls.

This does not mean those at the top end are not getting richer. They are. But their increasing wealth comes mostly from lowering the wages share, increasing the pace of work, taking over rivals, raiding public assets, and indulging in speculative bubbles. A further means for profiting by some is the creation of private and public debt.

All of this is parasitic and eats away at the well-being of the economy. It cannot be sustained for ever.

All this makes it clear that jobs creation must be at the centre of economic policy. The caveat is that this must be on genuine jobs creation, and not the destruction of existing ones to create casual, part time cheap labour force. Genuine jobs creation means increasing the labour share.

On delivering the budget on 11 May, Treasurer Josh Frydenberg will claim jobs creation as the top priority. According to a speech he made last week, measures to boost job skills, infrastructure, tax, energy, digital technology will be announced.

This will  amount to little if the underlying systemic problem is ignored. These measures will pass on some private sector cost of doing business to the public purse. But will do nothing to create real new jobs. With nothing else changed, the gift will be used to do more of the same.

Doing  this is not a proper recovery plan.

There is talk about getting the official unemployment rate down from around 6.5 percent to below the 5 percent mark. This ignores that the real effective unemployment rate, when factoring in those not registered as being employed and underemployment, is really above 20 percent.

Without taking on the real effective underemployment, everything will be an exercise in manipulating the numbers to make it look good for the government, while doing nothing to address the problem.

Creating new jobs means coming into being of new industries, and this in turn means, taking advantage of the best existing opportunities. The best is to build a new sustainable economy and discouraging the old, inefficient, and dirty fossil fuel dependent economy. This looks toward the future, to the creation of new value, and therefore genuine growth.

Special attention must be turned to building a new Australian manufacturing base, and this is being almost totally ignored.

The announced $1.2 billion boost to the Digital Economy Strategy could have some importance. But not if it is channelled into getting rid of even more labour, instead of  building new capacity and diversity. There is no sign of measures to ensure this comes about.

Many Australians have been calling for a boost to childcare services. A $2.7 billion spending increase, to help 400,000 families – particularly low- and middle-income families, is a positive move.

Other potential positives are the $371 million for biosecurity measures to keep out exotic pests and diseases, and the $1.3 billion boost to infrastructure. The latter is compromised though, by dovetailing almost all of it into road building. Other forms of transport and alternative energy generation, transmission and storage are ignored, as is Australia’s backward digital communications system. All are important for the future health of the economy.

A further $600 million is earmarked to set up the National Recovery and Resilience Agency. This is an agency to prepare strategies to cope with disasters.

Photo from News Corp Australia: Federal Treasurer Josh Frydenberg

The government seems to have given up the idea  of holding back an increase in the employer contribution to superannuation. The rate will rise from 9.5 percent to 5 percent in the coming financial year. But those on the age pension and other benefits can expect little and continue to go backwards.

A big $10 billion is to be allocated to aged care funding. More funding is needed. But the approach ignores that the real problem is how the public sector institutions are being run. They need more regulation, not more money being thrown at them. Although the money will lift the earnings of the owners, it is not likely to be used to improve the quality of care and do nothing to boost the economy.

Increasing spending on military bases in the Northern Territory by $747 million may have some small flow on to the local economy. The trouble is that  this is geared to servicing the American military presence in the state and the global economic and political ambitions of that power.

Australia’s economy and society would be much better served by efforts to build positive relationships than by turning to military posturing and threat.


Between now and budget day the specifics might change. The direction outlined above will not, and this is its failure to take on the real issues. This failure will hurt the economy further.

Making it even worse, is that further tax cuts for the wealthiest and big business are expected. This has been in the government’s mantra all along. There may be a small concession to those with middle and low incomes.

Analysis of the data shows that most Australians will see an increase in the tax they pay. This will do nothing to create jobs and help the economy.

Sometimes tax breaks are positive. We can say this about the $250,000 help for breweries and distilleries. The difference is that it is targeted to a specific need. The final verdict, of course, is in the detail.

Even worse than the bad tax breaks, is the $120 million for increasing deregulation. The problem here is not the spending. It is to be devoted to cutting back the regulatory framework.  The argument put for it is that deregulation encourages investors. The experience since the mid-1980’s has failed to do this and encouraged harmful investment and speculative bubbles. Further deregulation will only encourage more of this.

There is precious little to expand effective demand, especially for a new economy. Ensuring citizens have more for discretional spending is essential. The only way that this can happen is for real disposable income to increase for everyone. This means both wage earners and those on Centrelink payments. Only when all have enough to live on can the economy be secured to a solid foundation.

There is nothing on this front.

Looking to the future demands that the economy be made democratic. The systemic problem arose because the key decisions are made by a few people concerned about their own immediate position and short-term profit, rather than what is best for everyone. This is not to say that individual ambition has no place. But it must operate in the context of a proper balance between this and our shared interest.

Democratising the economy means putting decision making in the hands of citizens, at work and in society at large. Without this, the systemic problem will not be removed, as it will continue to work against the creation of real jobs and the needed redistribution of income.

An important ingredient for kick starting the economy is the participation of people. Participation requires a sense that it is worthwhile and that the reward is fair. Take these out and participation will fall. Build participation and human capital grows.

The government has no interest in a democratic economy. This limits what can be done. Even with the best of intentions for everyone.  And this government has never been accused of this.

Not surprisingly, this budget is shaping up to be more of the same with one addition. Chances are that it will be doctored to be a massive con job, pretending jobs creation, while actually doing nothing of the sort.


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