Home > Economic policy > Trouble in paradise (updated)

Trouble in paradise (updated)

January 22nd, 2013

That’s the headline for my latest Crikey article, on Queensland Treasurer Tim Nicholls’ lame excuses for the rise in unemployment that inevitably followed his government’s decision to sack around 14 000 people. I’m reposting it over the fold

Update I’ve updated to take account of the fact that only 8000 of the promised 14000 sackings took place in 2012.

Reading Queensland Treasurer Tim Nicholls’ attempts to explain away the latest unemployment figures, showing Queensland pulling up the rate for the country as a whole, the question that springs immediately to mind is: Why bother?  Wouldn’t he be better off with some Thatcherite “No pain, no gain” rhetoric, promising that the cuts his government has implemented will yield payoffs for all Queenslanders in the long run.

Sacking 14 000 people in a state with 2 million or so employed workers will raise the unemployment rate by around 0.7 per cent. So far, the government has sacked about 8000 people, corresponding to a 0.4 per cent increase in unemployment. The rest of the increase can be accounted for by ‘second-round’ . The nurses, social workers and firefighters his government has sacked have less money to spend on goods and services of all kinds. The tens of thousands still threatened with the sack but would also be looking harder at discretionary spending.

Of course, as Nicholls points out, other factors are at work. The mining boom has slowed a bit and commodity prices have come down from their recent peaks. But that only points out the dubious timing of these massive cuts. Under boom conditions, public sector workers would have more easily found new jobs.

Nicholls also tries to blame international events such as uncertainty over the US ‘fiscal cliff’ in the lead up to the New Year. Leaving aside the question of whether anyone in Queensland, beyond a handful of political junkies like me, paid attention to these tiresome theatrics, any effects would be felt equally throughout the Australian economy. Moreover, the Reserve Bank, which does pay attention to such things, cut interest rates in part to offset the effects of global uncertainty, of which the fiscal cliff was a small part. Assuming the RBA got the call right, there should be no net effect here.

There are some policies that might have been expected to have a more positive effect. Just a couple of days ago, Nicholls issued a press release trumpeting the fact that, despite its allegedly dire fiscal circumstances, the Newman government has raised the threshold for payroll tax, which was already the highest in Australia. Sadly, it appears that the medium-sized businesses benefitting from this move (the beneficiaries are firms with payrolls between $1 million and $2 million – the core supporters of the LNP government) have pocketed the cash, but have not moved to hire new staff.

Still, Nicholls looks insightful compared to Campbell Newman who is quoted as saying that Employment Minister Kate Ellis’ statements simply reflect the fact that Labor wants to win seats in Queensland. Well, yes. Newman won his landslide victory almost by default. He apparently finds it startling that, when one side of politics makes a mess of things, the other side tries to take advantage.

It’s hard to recall a newly-elected government that has lost support as quickly and completely as that of Campbell Newman, Jeff Seeney and Tim Nicholls. Rather than trying to blame the messenger, perhaps they should pay some attention to the message they are being sent, in both economic data and opinion polls.

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  1. moz does nothing
    January 22nd, 2013 at 09:18 | #1

    I think Kate Ellis was trying to draw out the contrast between Labor and her own party. As part of their ongoing anti-politician strategy it’s understandable, and perhaps she’s hoping for a US-style level of ongoing support for anti-government governments.

  2. Geoff Andrews
    January 22nd, 2013 at 10:37 | #2

    @moz does nothing
    Could you just tease this argument out a little more, Moz?

  3. kevin1
    January 22nd, 2013 at 10:58 | #3

    I don’t get it Moz.

  4. moz does nothing
    January 22nd, 2013 at 11:04 | #4

    I’m reading Kate Ellis as saying “those awful Labor politicians … The LNP is not like that, we’re normal people, we don’t like politicians, politicians suck.” Watching Qld I’m inclined to believe that there are quite a few recently-elected politicians who haven’t really adjusted their attitudes to “I am a politician, politics is what I do”.

    That strategy has kind-of worked for some Republicans in the US, but tends to cause all voters to become disengaged, rather than just other-party voters.

  5. Michael McGregor
    January 22nd, 2013 at 11:24 | #5

    “it appears that the medium-sized businesses benefitting from this move (the core supporters of the LNP government) have pocketed the cash, but have not moved to hire new staff”

    Completely reckless assertion Mr Quiggin. SMEs in QLD are doing it tough, and have been doing so for a long time. The survival rate of QLD SMEs dropped to 58.6% in 2011, and with that a persistently high Australian dollar and lack of emphasis on the non-mining industries during a boom period has impacted severely on their operating conditions. To promote the notion that all SMEs in Queensland are cashed up because of a much needed reduction in payroll tax is false and untrue.

  6. Tim Macknay
    January 22nd, 2013 at 12:01 | #6

    I’m reading Kate Ellis as saying “those awful Labor politicians … The LNP is not like that, we’re normal people, we don’t like politicians, politicians suck.”

    moz, Kate Ellis is a Federal Labor MP. That’s why some of us are finding your theory a little confusing.

  7. Nathan
    January 22nd, 2013 at 12:41 | #7

    @Michael McGregor
    Your conclusion is logically disconnected from your statements. JQ simply (and correctly) points out that the employment figures indicate that these businesses are not putting the extra cash from the tax cut towards hiring. You essentially say “small business is doing it tough and needs that money”. Even if that’s true the original point is still 100% correct.

  8. Michael McGregor
    January 22nd, 2013 at 14:55 | #8

    @Nathan

    The data tells us otherwise. QLD SMEs are not just faced with payroll tax, they are also saddled with many more tax and regulatory obligations. For John to assert that SMEs are cashed up now 10 months after a policy change is definitely incorrect. It ignores the operating conditions and costs faced by SMEs both in the SEQ corner and in the regions.

  9. John
    January 22nd, 2013 at 15:08 | #9

    The problem with John Quiggan’s article and with everything Kate Ellis and Labor is saying is that 14,000 people haven’t lost their jobs yet. It will be 14,000 total eventually, but it is happening gradually over a period of time. Tim Nicholls pointed out that so far only about 8,000 jobs have gone. So, since that is just over half the total figure, then it would result in around a .4% increase according to Quiggan’s mathematics, which is much LESS than what has happened. So the question is where the other job losses have come from? And that is what Tim Nicholls was explaining.
    In December of the 20,000 jobs lost in Queensland only a very, very small portion would have been public service positions, so to blame a rise in unemployment entirley on the LNP is ridiculous in the extreme.

  10. Adam
    January 22nd, 2013 at 15:24 | #10

    @Michael McGregor
    The problem with that comment though is this he is not claiming that these businesses are cashed up, merely that they are taking any money saved from the tax cut and not spending it on new staff.

  11. ted guy
    January 22nd, 2013 at 15:38 | #11

    to call this fella a economic pigmy is to insult the pigmys,we are going down hill fast under this govn.

  12. iain
    January 22nd, 2013 at 15:50 | #12

    Whenever I see “only a very, very small portion would have been”, I think: “inability to research numbers or facts”.

    Also I have to wonder, “does this guy believe his (clearly preferred) government and/or policy is responsible for employment”?

  13. Roxee
    January 22nd, 2013 at 15:57 | #13

    I’m a Queenslander and am a Registered Nurse. I’m not sure if our new “Dear Leader” is a supply side, trickle down, conservative or a shrink government, privatise everything Libertarian. Either way he has me scared to death and consequently hoarding any spare cash – which ain’t much. I suspect he’s the latter given Australias success at heading of the GFC with a Keynsian response. I’d like to say “God help us”, but given I don’t believe such an entity exists I guess it will be up to us at the next ballot box, because he sure as hell isn’t listening to citizens protesting his decisions contrary to what he promised. I just hope he doesn’t wreck the Qld economy too much and sell everything we own before we next get a say. Selling public assetts is the advice coming down the pipe in the next Costello recommendations rumour has it.

  14. John
    January 22nd, 2013 at 17:22 | #14

    @Iain. Speaking of “inability to research numbers or facts” – Only 8,000 public service jobs have gone so far – in 9 months, and 11,000 jobs were lost across the state in just one month. The only way for it not to be a very very small portion would be if every one of those 8,000 jobs went in one month. Not sure how you became the keep of all research. The reality is the total number of public service jobs lost in December was in the hundreds, not thousands. Please explain to me how that cause such a big spike in unemployment.

    I also have to wonder, “how can this guy seriously believe anything Labor and their bedfellows the unions have to say after how badly they stuffed up the state?”

  15. Jim Rose
    January 22nd, 2013 at 19:53 | #15

    can state governments conduct fiscal expansions and contractions? will city councils be next?

  16. Jordan
    January 22nd, 2013 at 20:18 | #16

    @John

    after how badly they stuffed up the state?”

    Imagine that, stuffing state with debt! That is one sector of economy, what is opposite of that sector? Private sector.
    If state sector gets stuffed with debt, then private sector recieves that ammount. WE are private sector.

    Did you get that? When state sector spends more, it spends more to private sector benefit.

    If taxes take away from private sector and gives to the state sector, that is negative to private and benefitial to state sector, right?
    Then from that you could conclude that if state sector gives more then it takes away, that benefits private sector – it benefits US.

    It is just that you believe that state sector has limited resources to give no matter evidence. Look at the Japan. Japan gave private sector in amount of 250% of what it previously had and it still has to give. It gave 250% more then it took from private sector and they still fear deflation, not inflation as you probably believe.

  17. Neil
    January 23rd, 2013 at 06:55 | #17

    Very good article John, and to the point of exactness. The LNP tried to show QLD and the public servants who’s boss, well they certainly did that. They showed all of QLD the leadership skills of monkeys. It also proves that trained monkeys can’t do everything. The public slur campaign against the public servants certainly worked and is still working that Newman initiated. He successfully divided all public servants from the community and degraded their reputations, yet it is only the lazy ones that should have been affected and removed. But Newmas style of leadership is divide and conquer. Which is a tedious and abhorant method of leadership which bears the hallmarks of bullying and being a thug. Lets hope thatthe LNP find their demise similar to labor at the last election, but my gut tells me that they will fare much worse. Shame, shame, shame.

  18. Joan
    January 23rd, 2013 at 08:31 | #18

    @Neil

    @Neil
    Here here Neil I totally agree with your astute comments on this Government. Lets just hope they are removed before they cause irrepairable damage to this great State.

  19. Nathan
    January 23rd, 2013 at 10:59 | #19

    @Michael McGregor

    See Adam at #10. JQ didn’t describe anyone or anything as “cashed up”. He pointed out that the tax break was not passed on in the form of hiring. The data shows this is true. You should consider reading articles/comments before responding to them.

  20. Ikonoclast
    January 23rd, 2013 at 12:32 | #20

    @Neil

    I know many good people and good workers in their fifties who have been retired out of the workforce over the last five years. The ostensible reasons are various but the real reasons are simple;

    (a) public and private employers don’t want these people anymore; and/or
    (b) these people are fed up with what the modern workplace has become.

    You have to wonder what is wrong with our entire system when it is paying out, p***ing off and literally throwing away these all these good and experienced people. At the other end of matters, youth unemployment is horrendously high at nearly 20%. And that is even after we keep most youth in dumbed down streams of education as long as possible (to the year 12 dumbed down stream). They then leave to become unemployed, hair cutters or fast food outlet workers.

    Clearly, this country is in a huge bind economically. To be wasting such enormous amounts of physical and intellectual labour which could be making a useful input means very significant productive possibilities foregone. It also means we are storing up severe social problems for the future. To be alienating and scrapping experienced mature workers in droves and completely wasting 20% of our youth on unemployment and probably another 20% on the most menial and meaningless service tripe that capitalism dishes up as “work” is a disgrace. The system is broken. We need a new system.

  21. iain
    January 23rd, 2013 at 13:25 | #21

    John, please don’t verbal me. Regardless of how pointless it is having a conversation with someone who thinks 20,000 job losses isn’t the responsibility of the direct government…your comments are worth pointing out again for their inability to account for facts.

    “The only way for it not to be a very very small portion would be if every one of those 8,000 jobs went in one month”

    Terrible logic. Terrible maths.

    Also, your inability to account for direct public service full time job losses, public service contract job losses, employment dependent on support for public service, employment dependent on strong signals supportive of responsible local industry…

  22. Mary Cliff
    January 24th, 2013 at 07:45 | #22

    Not only those actually sacked but also Queensland Government not hiring like it used to. The sackings of temps in June was 7 months ago so plenty of time for the private sector related job losses to start to filter through. What is the ration 1.5 jobs in the private sector lost for every 1 job in the public sector?

    My husband lost his job this week 100% reliant on government funded projects even though private sector contractor. I think this is where they may have mis-calculated. Years ago everyone working in the public service was hired by the public service. Now who knows really how many rely on publicly funded projects.

    Queenslacks lacks short term back-up plans so I think could get worse. I agree retail will be next hit and will confirm there is further bad news possible. I read mining is in investment cycle so maybe when it moves to production cycle we may see some improvement but not an area I understand so speculating.

    A move to NSW is on the cards for our family. Paradise lost, without question.

  23. areturntojournalism
    January 24th, 2013 at 14:36 | #23

    Professor Quiggin – What do you make of this statement from the Premier today on the front page of the Financial Review?

    “He said further public service job cuts could be needed if the Federal government continued to cut funding in key areas, such as health, or if the state’s economy deteriorated.”

    I’d like to know your thoughts on a strategy of cutting public sector jobs during an economic downturn?

  24. Jim Rose
    January 24th, 2013 at 16:10 | #24

    It is best to look upon the changes in state government purchases as a regional sectoral shock.

    Irrespective of whether the shock itself is a positive or negative productivity shock, the laying-off of a mass of workers with firm and industry-specific human capital will lead to a spike in Qld unemployment.

    Finding new jobs in another sector is always a more time-consuming process of job search. People wait and cast around to salvage as much of their specific capital as they can before looking further afield

  25. Ikonoclast
    January 24th, 2013 at 17:30 | #25

    “The sackings will continue until unemployment improves.”

    More seriously, the argument about Federal cuts looks to be a furphy. Has not the federal government announced that the austerity cuts to get to a surplus are not happening for the moment?

    What other sector has 8,000 jobs and later another 6,000 jobs available to soak up those enemployed? Qld has about a 6.3% unemployment rate. This represents an official unemployment number of about 145,000 to 150,000.

    I found recent job vacancy data hard to find but my guess is they are chasing about 40,000 available jobs. So fill all jobs and u still have 100,000 unemployed or thereabouts in Qld.

  26. John Brookes
    January 26th, 2013 at 20:41 | #26

    And now they’ve got more floods, to show that even God does not approve…

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