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Tuesday, 14 February 2012
Page: 1263

Mr KELVIN THOMSON (Wills) (18:02): The first week of the parliament has made it plain that the Liberal opposition is clueless on the key economic questions confronting Australia. The first giveaway was their reluctance to talk about the economy in question time. They wanted to talk about the events of Australia Day or the Fair Work Australia investigation into my namesake, the member for Dobell. They did not want to talk about the economy. That is not surprising. Inflation is now lower than Labor inherited from the Liberal government. Unemployment is now around five per cent. The average during the Howard years was 6.4 per cent. I heard the Leader of the Nationals criticising the stimulus spending. If we had not implemented the stimulus measures that we did during the global financial crisis—measures opposed by the opposition—unemployment today would be 200,000 higher than it is now. We would have unemployment and social problems of European proportions. Interest rates are lower than they were under the Liberal government. A family with a $300,000 home loan is paying $3,000 a year less in interest payments than it was at the time of the change government.

Furthermore, when the opposition is asked about the big economic policy questions facing Australia today they are all over the place. On the issue of whether and when and how they would balance the budget, they have as many positions as they have economic spokespersons. The poor old voter does not have a clue about what their budget strategy might be. On the question of support for manufacturing industry, they have said that they will take $500 million out of the support that government provides to the car industry. But this policy is supported by some frontbenchers and opposed by others and is apparently under review. With apologies to Jack Nicholson, they want an election but they are not ready for an election.

Given this background, people ask why the government is behind in the polls. Part of the problem is that we are not using the right performance indicators. Two of the key performance indicators that we use are, firstly, how Australia compares with other countries and, secondly, economic growth. It is true that Australia's economy is substantially outperforming other OECD countries and that people in other countries would love to be in our shoes. But the problem with comparing ourselves with other countries is that it is not really how Australians experience life. The way in which people experience life is much more to compare things with how they used to be. Are we better off or worse off than we used to be? Is it easier to get a job? Do we have to work harder or longer? Is it harder to make ends meet? Viewed from that perspective, the picture is much murkier and it also explains why both major parties, who have between us been in government for Australia's entire post war history, have lost significant public support. I believe people notice not only immediate changes in their circumstances and life chances and the world around them but also long-term changes. It is striking for those of us who are old enough to remember that the Whitlam government was tossed out of office unceremoniously on the grounds that it was a poor economic manager, yet its economic figures look great by modern yardsticks—an average of 3.3 per cent unemployment compared with an average five per cent unemployment under the present government and 6.4 per cent under the Howard Liberal government. National savings as a percentage of GDP were 14 per cent and the household savings ratio was 18.9 per cent, which declined to six per cent and 2.2 per cent under the Howard government, now lifted somewhat to 6.7 per cent and 8.4 per cent but still well below the Whitlam years. In the Whitlam years, real wages increased an average of 4.5 per cent per annum. In the Howard years, they were 1.9 per cent per annum. They are now increasing by 0.1 per cent per annum.

The current account deficit increased from 0.7 per cent of GDP under Whitlam to 4.6 per cent of GDP in the Howard years. It has reduced to 3.9 per cent during Labor's term. Net foreign debt has risen sharply from 2.2 per cent of GDP during the Whitlam years to be averaging 51.9 per cent now. Taxes are higher now than they were under Gough Whitlam and housing affordability has deteriorated. So, when people think about how they are going and compare it with the way things used to be, often they are not happy and overseas comparisons will only take us so far.

Then there is our obsession with economic growth using GDP as a performance indicator. Using economic growth as a performance indicator sucks us into a number of traps, most notably inevitably luring us into policies to promote population growth. It is a quick and easy way to boost the GDP number. Of course, it is dodgy. If more people come and live in your street, an economist will do the sums and say your street is wealthier. However, it does not make you any better off. Indeed, population growth makes people's lives harder. There is more competition for jobs, more competition for housing, more competition for space on the roads and a spot on the bus et cetera. It brings with it rising cost of living, more people out of work, traffic congestion, declining housing affordability and environmental damage.

Joseph Stiglitz and his fellow Nobel Prize winner Amartya Sen said in 2009 that the shortcomings of GDP as a measurement were one of the causes of the global financial crisis. The deficiencies helped portray the US economy and the global economy as being in better shape than they actually were before the credit crisis hit. Stiglitz said:

In a performance oriented society, what you measure affects what you do. If you have the wrong measures, you can wind up doing the wrong thing.

Stiglitz said a key problem was that non-existent profits were factored into GDP calculations. For example, 41 per cent of all corporate profits in 2007 were generated in the financial sector and tied to debt. In other words, the gains were 'borrowed from the future'.

The massive subprime related losses that financial institutions booked in 2008 wiped out not only the profits from 2007 but also those from the preceding five years. Stiglitz said, 'They were not really profits, but we recorded them as fantastic years.' Furthermore, during the bubble based run-up to the economic crisis, prices of output or capital were much higher than they should have been. They were 30 per cent or more higher in the case of real estate. So the value of all goods and services being used to calculate the GDP 'overestimated output', Stiglitz said.

GDP does not take into account anything where money is not involved. Accordingly, it does not say anything about the contribution made by households or community volunteers. This leads to transparent anomalies. If we paid our neighbours to do our housework and they paid us to do theirs, the GDP would boom and politicians and economists would be delighted. It is hard to see, however, precisely how we would all be better off under such an arrangement. More seriously, a whole realm of essential work caring for our children and caring for our older people goes uncounted. But just because this work does not have a dollar value does not mean it has no value at all. On the contrary, it is and always has been an essential part of the richness of our society. Take out the volunteer work, the community work, the work we do maintaining our houses and our society would soon fall over. Moreover, it can hardly be right that work such as child care, or the housekeeping in the earlier example, has value if money changes hands and no value if it does not. So, as a celebrated article on this topic way back in 1995 pointed out, GDP rises by cannibalising the family and community realms:

Parenting becomes child care, visits on the porch become psychiatry and VCRs, the watchful eyes of neighbours become alarm systems and police officers, the kitchen table becomes McDonalds—up and down the line, the things people used to do for and with one another turn into things they have to buy.

The GDP compounds the sin by adding in the expense which arises from neglecting the non-market realm, such as the cost of prisons, social work, psychological counselling and drug abuse.

Then there is the question of the environment. In a GDP based accounting system, the environment is treated as having no value, or as capable of indefinite renewal. This runs counter to the overwhelming weight of scientific evidence and, indeed, violates basic accounting principles by portraying the depletion of natural capital as current income rather than as the depreciation of an asset. As the former World Bank economist Herman Daly puts it, 'The current national accounting system treats the earth as a business in liquidation.' If you go back to the 1992 report of the Bush Administration's Council on Environmental Quality, it made the same point:

Accounting systems used to estimate GDP do not reflect depletion or degradation of the natural resources used to produce goods and services.

Not only does depleting natural resources show up as a gain rather than a loss; activity which generates pollution adds still further to the GDP because of the cost of clean-up. So pollution gets counted twice as a benefit to the economy. Oil spills such as the Exxon Valdez disaster and the like lead to an increase in GDP. I believe we should ditch GDP as a key performance indicator. We certainly need to continue to have measures of economic performance, but we need to give equal billing to environmental indicators, health indicators, education indicators and social justice indicators.

In relation to economic performance, we should treat GDP and economic growth as a by-product, not as an objective. The important economic indicators are employment, inflation, interest rates and a balanced budget. These things really do matter. We want full employment, or as close to it as we can possibly get. We want low inflation, keeping prices as stable as we possibly can. We want low interest rates; we do not want people in debt and going broke. And we want balanced budgets; we do not want countries in debt and going broke. Full employment, low inflation, low interest rates and balanced budgets—these are the important economic indicators.

There are, of course, many possible different environmental indicators of performance, but I think that three need special attention. The first is stopping the decline in numbers of birds, plants and animals, and the habitat destruction which is the biggest driver of this. The second is cutting carbon dioxide and other greenhouse gases, preferably globally by 60 per cent over the next 40 years to head off dangerous climate change. And, because of the numerous adverse environmental impact of population growth, the third important indicator is how countries are going in stabilising their populations. We need health indicators, like life expectancy and how our rates of obesity and diabetes are moving. We need education indicators, such as English literacy standards and post-secondary education outcomes. And we need social justice indicators. What is happening to the gap between rich and poor? What about fairness in the workplace? How are we treating our students, our older people, people with a disability and our Indigenous people? These are the things that really matter. These are the things that we should be putting real effort into measuring and even more effort into achieving. If we adopted these indicators, it would become blindingly obvious that our migration level is too high and, in particular, that our skilled migration level is too high. It strikes at the heart of our ability to deliver these indicators.

There has been a really interesting debate around the Labor Party in recent times about the unemployment benefit. Some people say the unemployment benefit, or Newstart allowance, is too low, that it is a recipe for real hardship and that we should lift it. Others say that we cannot afford to do that and that in any event the solution to disadvantage is not to increase the benefit but to get people a job. Some say there is no 'magic bullet' to reduce unemployment and others say that five per cent unemployment is pretty much full employment and that we are actually short of workers. First of all, I emphatically disagree with the latter view. In addition to the 630,000 unemployed we have over 800,000 people on disability support payments, some of whom, with proper training and incentives, could rejoin the workforce. In Broadmeadows, next to my electorate, there is 13 per cent unemployment. In Preston, a suburb also neighbouring my electorate, the local newspaper reported that an engineer from Colombia, who came to Australia as a skilled migrant, was working as a cleaner after applying 17 times in four months for engineering work without getting so much as an interview. We are not short of workers and potential workers. I do not agree with those who are pessimistic and say there is no magic bullet. When we had a lower rate of unemployment in the 1970s, we had much lower net overseas migration. In 1977 it was 58,000; in 1978 it was 63,000; and in 1979 it was 55,000. By 2009 it was over five times as high, nearly 300,000. If we return to a net migration level of 70,000, it would open up opportunities for people who are presently locked out.

I strongly agree with the Prime Minister's support for the manufacturing industry and for the car industry. I strongly agree with her agenda of increased workforce participation and of building research, development and skills, but I think the high migration load—high skilled migration, high subclass 457 visas and high overseas student numbers—completely undermines this worthy and important agenda.

We need to use performance indicators that will help us to focus in on groups who are entitled to our support: workers, students, pensioners, small business, those concerned about the environment and those for whom there is clearly scope to lift our support.