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Community Affairs Legislation Committee

GRUDNOFF, Mr Matt, Senior Economist, The Australia Institute

ZAHRA, Mr Paul, Chief Executive Officer, Australian Retailers Association [by video link]


CHAIR: Welcome. Thank you for appearing before the committee today. Do either of you wish to make a brief opening statement?

Mr Grudnoff : I had a statement, but I'm aware that time is a factor, so I'd just like to make three quick points. The main research that we've looked into in poverty has shown that when the government introduced the original coronavirus supplement at $550 per fortnight it reduced poverty by over 400,000. It was probably the single largest reduction in poverty of any single change in government policy. But, since they've cut it back over time, we've seen poverty return not only to the original 400,000 but more so, so it's probably more like 700,000 people in poverty.

The other thing that we've done research on is around work incentives. We've looked at OECD nations, and we found that if you look at the level of unemployment payments versus the unemployment rate in those economies we actually found a negative relationship—that is, countries that have higher unemployment payments actually have lower unemployment rates. So it doesn't appear that in OECD nations that there is a disincentive to work from higher unemployment payments.

CHAIR: Thank you. If you would like to table your opening statement as well, if you have a copy of it, feel free to do that.

Mr Grudnoff : Yes, I will do that.

CHAIR: Thank you. Mr Zahra, did you wish to make an opening statement?

Mr Zahra : Chair and senators, thank you for the opportunity to appear today in response to the Social Services Legislation Amendment (Strengthening Income Support) Bill. The Australian Retailers Association is a not-for-profit organisation representing approximately 7½ thousand Australian retailers. We are the oldest and largest Australian retail industry group. We represent the majority of Australia's largest retail entities as well as many small to medium sized businesses. The $340 billion retail sector is Australia's largest private sector employer, employing over 1.2 million Australians—that's one in 10 Australian workers.

COVID-19 has been well managed in Australia, and the ARA are grateful for the support the government has offered during this challenging period. The pandemic has really re-enforced the impact of government spending on the retail sector, and the increases and extensions to payments in this bill will further support the sector's economic recovery. The ARA supports the bill, providing help to those who are most in need through the extension of the portability period for certain age pensioners and recipients of the disability support pension until 30 June 2021.

Social security recipients spend an estimated 58 per cent of their payments on retail goods or services. That's at supermarkets, convenience stores, essential merchandise stores and other local small businesses. We saw glimpses of this during the GFC in 2008 and 2009 when economic stimulus dollars went straight into the retail economy. The support delivered through the [inaudible] of skills show us how personable the relationship is between Australians and retailers as well as between spending and confidence. We know that retail workers are at the frontlines of the Australian economy and that retail performance is a true bellwether for the broader economy.

With JobKeeper coming to an end it becomes more imperative than ever to ensure there is certainty for Australians. Confidence and certainty are intrinsically linked to spending; spending is intrinsically linked to jobs. These jobs affect hundreds of thousands of Australians in the retail supply chain. Every dollar given in social security is spent. Every dollar spent in retail gives someone a job, from sales staff to manufacturer to the truck driver delivering the goods. One person's spending is another person's income. We need the spending to continue. Household spending is the biggest part of our economy; it accounts for around 56 per cent of all spending. We cannot have an economic recovery without a retail recovery.

Senator McCARTHY: I want to go to the dob-in-a-jobseeker hotline and my question is largely open to both organisations. What is that going to achieve for your businesses? Will it help or hinder your businesses?

Mr Zahra : I'm happy to go first. We haven't had many positive conversations with our retailers around this particular issue. We believe it will drive anxiety more than anything else so, broadly, we're not in support of it. We think it doesn't really add to solving the real problem here.

Senator McCARTHY: When you say you're not in support of it, what would you recommend as we look at this legislation when that's clearly a component of it?

Mr Zahra : I guess we see the anxiety that drives individuals and we're concerned about the impact it will have on the community. From our perspective we don't know what the alternatives are, but we didn't see that as being the biggest part of this legislation.

Senator McCARTHY: The government is planning a return to the requirement that people receiving unemployment payments apply for 20 jobs a month. Mr Zahra, from the point of view of business, is that a productive way to go? Does the current system of mutual obligation work or is it just another concern?

Mr Zahra : The concern we would have is it may just drive the wrong behaviour: that people go through the process just for the purpose of securing unemployment benefits. That could just add more administration and costs to the retailers going through that process.

Senator McCARTHY: Is that a bit of an annoyance for business? Does it lead to jobseekers feeling ignored and despondent? What would you say can be done?

Mr Zahra : Again, I probably need to understand the alternatives. I'm not sure this is going to drive the outcome we're seeking here.

Senator McCARTHY: What impacts on local jobs and demand spending occurred when the coronavirus supplement reduced previously? What impact was there on local jobs?

Mr Zahra : Initially there was a significant drop in revenue which meant that there were grave concerns—this is back in April last year—around the industry generally. But, of course, the announcement of JobKeeper and JobSeeker had a positive impact on the industry. Whilst there are winners and losers, the majority of the retail industry has done fairly well out of the government stimulus.

Senator McCARTHY: What impact will the $100-per-fortnight cut have at the end of March?

Mr Zahra : What we do know is that 58 per cent of social security receipts are spent on goods and services. I can't do the maths right now, but the majority of that will be felt in the retail industry.

Senator McCARTHY: Would you care to take that question on notice, do some figures and get back to us on that?

Mr Zahra : We can. I'm not sure we've got the capability, but I'm sure we can work with an economist to work through the numbers, no problem.

Senator McCARTHY: Will this result in job losses in retail and small businesses? If so, how many?

Mr Zahra : We would have to value the difference and understand what impact it will have on retail recovery. So we will take that on notice and come back to you.

Senator McCARTHY: I have a question for The Australia Institute now. I was talking about the impact of the loss of $100 per fortnight at the end of March and if this will result in retail and small business job losses. Do you have any comments to add?

Mr Grudnoff : Yes. It's likely to take large amounts of money out of the economy and certainly that will lead to more job losses than would otherwise have been the case if it hadn't been taken out. So while we don't exactly know what's going to happen with the economy—we don't know the aggregate outcome of how much employment—we do know that if you withdraw that kind of significant amount of money out of the economy by cutting unemployment benefits, and we know that the unemployed spend all of the payment just covering the essentials, we can therefore say that the unemployment would be higher than it otherwise would be.

Senator McCARTHY: This is to both of you: given the spike in the number of people receiving unemployment benefits, which is currently at 1.4 million, are there enough suitable jobs in the right places that match people's skills?

Mr Grudnoff : Not at the moment, no. If I can put it as an economist, there's a lack of aggregate demand in the economy—that is, there aren't enough people wanting stuff in order to employ everybody to make that stuff. So, because of that lack of aggregate demand, there will definitely be some unemployed. What we see at the moment is that unemployment is significantly higher than it was at the pre-pandemic level, and that's because of that lack of demand.

Mr Zahra : Senator, from the retail perspective, did you just quote that there are 1.4 million people on unemployment benefits.

Senator McCARTHY: Given the spike in the number of people.

Mr Zahra : There are 1.2 million people currently employed in Australia in retail, so it's not possible for there to be work for 1.4 million people.

Senator McCARTHY: Over the next four years, the government will spend $8.5 billion on employment services. Is this working for local employers, or is there a better way that this money could be aimed?

Mr Grudnoff : That's probably better a question for the Retailers Association.

Mr Zahra : I was going to say that I think it would be a better question for the economist!

Senator McCARTHY: By all means, take it on notice if you prefer.

Mr Zahra : We can do that. If I may, I think we'd have to come back with an informed view on that question.

Senator McCARTHY: Okay, thank you very much.

CHAIR: Senator McCarthy, thank you. Senator Siewert, we'll go to you.

Senator SIEWERT: Can I first go to Mr Zahra. You obviously aren't supportive of the new rate for the JobSeeker payment that the government has announced. Do you have an amount that you would support?

Mr Zahra : We support a permanent increase, which is what this is. We don't believe the increase to be adequate nor do we believe we're best to answer what those numbers should be. I've heard others quote that it should be in line with the age pension, and that sounds broadly right.

Senator SIEWERT: In terms of the work that the Grattan Institute released—I think it was last week—can I ask both you and the Centre for Future Work whether the impact of taking the rate down to an increase of just $25 a week would result in $5 billion out of the economy and 40,000 fewer jobs? Have either of you looked at that study, and is that what you consider to be a better reflection of the impact on the economy?

Mr Grudnoff : Broadly, that's probably fairly accurate. We are talking about billions and billions of dollars. It's also important to note that not every dollar injected into the economy has the same impact. For money directed towards low-income households, like unemployed households, we're likely to see all of that money spent, whereas for money directed at higher income households, we'll see some of that saved. It's a fact that the unemployed have to spend everything that they earn just to meet those essential needs, which makes them very good at stimulating the economy. But, of course, the reverse is also true; taking money away from the unemployed contracts the economy more than taking money away from, say, high-income households simply because all of it is taken out of the economy. Unemployed households tend to spend in the economy at their local shops. They spend a significant amount of money in those local retail settings, which also has a big impact on domestic employment.

Mr Zahra : I concur with my colleague.

Senator SIEWERT: I want to go back to the Centre for Future Work. Mr Grudnoff, I want to go to the point that you made both in your submission and in your opening statement about the so-called disincentive to work if the payment is too high. Could you expand on that for us. It seems to be in line with the work that Professor Borland has done as well.

Mr Grudnoff : Yes, certainly. There's an argument, wrongly, that a higher unemployment payment would act as a disincentive for work. Certainly if you increased unemployment payments an enormous amount, if you quadrupled them or increased them by a factor of 10, you would eventually run into disincentives to work. I'm not saying that they don't exist at all. But, over any reasonable range, what we found in our research—and we looked at 33 OECD nations, which are the wealthy nations—is that Australia had the lowest unemployment payments in the OECD but that 19 of those 33 countries had lower unemployment rates than Australia. For example, Germany has unemployment payments twice as large as Australia's and it has an unemployment rate half that of Australia's. So, despite having far more generous unemployment payments, it has significantly lower unemployment rates. The Netherlands is another example. They had unemployment payments that were three times as large as Australia's and yet their unemployment rate was almost two per cent below what Australia's was. So clearly in countries that have significantly higher unemployment payments they don't have large unemployment rates. So, because of this, we can see that over the current range of what is happening with unemployment benefits under the government's consideration even if they doubled the current rate of unemployment benefits we are not likely to see any real or significant disincentive to work.

Senator SIEWERT: In the media and in fact in the parliament there's been comment about a need for more seasonal workers in horticulture and agriculture, for example. Instead of keeping the payment so low that people are living in poverty, what are some of the things you would recommend we could do to support people or address those particular geographical issues around finding support for the horticulture and agricultural industries, for example?

Mr Grudnoff : In a market economy, when you can't find workers for a particular job, it's probably the case that the job is paying a wage that is too low and/or the conditions are not acceptable for workers. So what we have here is a situation where both there are the stories that come out of working in those horticultural settings and also the rates of pay are simply not enough to attract people to go and fill those jobs. Certainly the government might be able to address some of the terms and conditions around that employment, but essentially if the wage rate was higher then you would have no trouble finding workers to work in those jobs.

Senator SIEWERT: Mr Zahra, in terms of the Retailers Association and the drop in payment to $25 a week, what impact do you consider that will have specifically on retail?

Mr Zahra : We haven't modelled anything, but we know it will have a direct impact on essentials, predominantly in the food and beverage area to be frank because it's predominantly people living hand to mouth. It's certainly not the discretionary sector; there'd be no impact. Predominantly it's food and living expenses.

Senator SIEWERT: When you say 'discretionary' [inaudible] you said it's not going to have an impact in the discretionary areas?

Mr Zahra : No; 'discretionary' in the retail terminology would be department stores—so no impact at the top end of the market but a direct impact on essentials like food and pharmaceuticals.

Senator SIEWERT: Thank you.

CHAIR: I have one quick question for the Australia Institute. You were discussing your proposal there. Can you clarify what the cost would be in regard to the proposal you suggested and how it would rank against other expenditure of taxpayer funds? Obviously we have to prioritise things. What are your thoughts, and how much would it cost?

Mr Grudnoff : We would propose unemployment benefits be set at a rate that would lift people out of poverty, so that they wouldn't be in poverty. We know that pre-COVID the government was spending around $10 billion a year on unemployment payments. They're probably looking at another $10 billion a year to set it out of poverty. As far as other discretionary spending goes, stage 3 of the tax cuts, which have not yet come in, will cost the budget around $18 billion a year when they come in—so almost twice as much as what it would cost to bring people out of poverty from unemployment benefits, and those stage 3 tax cuts primarily go to high-income earners.

CHAIR: There are other things, including hiring credits and so on. Mr Zahra, can you give us your thoughts on the same thing: how would we rank an increase in the JobSeeker payment against other priorities for employers, like hiring credits, apprenticeships, subsidies et cetera? Where do you see them sitting in the priorities?

Mr Zahra : That's a tough question. I'd have to think this through, but I would hazard a guess and say that any impact on social security has an immediate impact on the retail industry, so it would have the highest priority. We know that 50c in the dollar is spent on retail goods and services, so it's a direct impact and, by the nature of that spending, gives somebody a job. In fact, it's a tick in more boxes.

CHAIR: All the others are assisting employers to employ more people as well. I am interested in your thoughts on that one.

Mr Zahra : I think the others do drive employment. They don't drive spending, though. That's the difference.

CHAIR: I'm very conscious that we've gone over time, so we will wind up there. I note we have questions on notice out of this; I think Mr Zahra took a couple on notice.

Senator SIEWERT: Can I add to the questions on notice for Mr Zahra. You touched on the impact of mutual obligations. Can I ask you to take on notice the current level of applications you get—if that's possible—for the sector, for work; and, with the mutual obligations coming back on, how many do you expect to receive, how would you handle those and what impact would it have on the sector?

Mr Zahra : We can take that on notice.

Senator SIEWERT: Thank you.

CHAIR: The committee is reporting to the Senate on Friday this week, and requests that answers to questions taken on notice be provided to the committee secretariat by close of business tomorrow. That does put a bit of added pressure on you, Mr Zahra! On that note, I thank you both for joining us today. I know it's been short notice. I appreciate the fact you've made yourselves available.