Since the height of the COVID-19 pandemic in mid-2021, governments around the world have committed to reopening the economy and renewing their focus on national economic objectives. In Australia, the government has placed a significant emphasis on lowering the unemployment rate and reaching the NAIRU after the unemployment rate reached 7.4% in mid-2020 - a result of sluggish economic growth, mass uncertainty and nationwide lockdown measures. With the latest announcement that the unemployment rate has fallen to 4%, it raises questions as to whether this is due to strong jobs growth or a rising number of discouraged workers that have given up and left the labourforce. With the Federal Budget being announced in a week-and-a-half’s time, it will likely stimulate growth and boost employment figures, which should lead the unemployment rate to fall to its lowest level since August 2008. This article will evaluate the extent to which the revised unemployment figure is an “accurate reflection” of full employment and will analyse how the predicted Federal Budget will improve overall living standards within Australia.
The unemployment rate and how it may deceive the general population
The unemployment rate is defined as the number of total unemployed persons as a percentage of the total labour force (employed and unemployed persons). This calculation assumes that an ‘employed person’ is an individual working to gain a salary/wage and assumes that an ‘unemployed person’ is an individual actively seeking work. Therefore, when Australia was told that the unemployment rate fell to a seasonally adjusted 4.0% in February 2022, the nation assumed that job growth has been significant since lockdown measures were pared back.
However, the unemployment rate figure can be slightly deceiving. This is because the calculation fails to consider hours worked, underemployment, employed persons on sick leave, employed persons working zero hours due to illness and other assorted sub-categories that hide behind the revered unemployment rate in Australia. As noted by Bjorn Jarvis, the Head of Labour Statistics at the ABS, total hours worked in February are 0.2% lower than May 2021 (pre-Delta) and 0.5% lower than December 2021. This shows that despite a strong unemployment rate and growth rate, total hours worked are still subpar and are incomparable to other earlier periods of strong economic growth (i.e. pre-Delta and pre-Omicron) in Australia.
Moreover, Jarvis notes that the number of employed people working no hours due to illness or sick leave remained 80% higher than what is expected in February each year. 590,000 employed people worked fewer or zero hours in February 2022 alone - a dramatic one-year increase from 389,000 people in February 2021. Whilst this is an improvement from January 2022, which saw 745,800 people working fewer or zero hours, it demonstrates that Australia is yet to fully evade the negative economic implications of the Omicron variant late last year.
However, it would be ignorant to not discuss the positives about this improvement in the unemployment rate. Whilst the calculation is faulty, Australia has seen a 77,000 increase in employment and flaunts an unemployment rate that is the lowest since August 2008. Moreover, underemployment has fallen to 6.6% in February 2022, a dramatic improvement since recording a 13.7% underemployment rate in April 2020. Whilst the underemployment rate is yet to meet the unemployment rate, the Federal Budget (to be announced on March 29, 2022) may provide the necessary support for those looking for additional hours of work.
How the upcoming Federal Budget plans to deal with the rising cost of living
The proposed date for the next Federal Election is yet to be announced for Australia. Regardless of the date, the Federal Budget will prove to be a crucial component to the election campaign of the Liberal Party and the potential re-election of Scott Morrison. The Budget will be announced on the 29th of March. However, there have been some announcements made prior to the official reading of the Budget Speech and if true, the proposed policy changes are addressing some of the major issues in Australia right now.
Josh Frydenberg has already hinted that there may be an increase in childcare subsidies and a potential reduction of the fuel excise duty. Childcare subsidies should alleviate pressures felt by those looking to re-enter the workforce, providing employees with additional working hours and increasing the participation rate from its current 66.4%. Moreover, childcare subsidies will allow young families to reallocate resources away from childcare expenditure and to fundamental, discretionary expenditure (e.g. food), boosting overall standards of living within Australia.
The paring back of the ‘petrol tax’ should effectively reduce inflationary pressures on fuel, which has been a paramount concern of the Australian public in recent weeks, as the average price of petrol in capital cities reaches 2.18$/L. Reducing the ‘petrol tax’ will please many Australian voters, as a recent investigation conducted by motoring groups revealed that only 50% of total revenue generated from the tax is re-invested into Australian roads. Despite raising $127.3b from tax over the last decade, ABC reveals that only $68.4b was spent on ‘Land Transport Expenditure’, meaning a significant chunk of revenue has been reallocated elsewhere in the economy.
The Federal Government is expected to introduce a substantial budget deficit this year, which has alarmed the Australian public amidst growing concerns regarding national debt levels. Yet, as noted by Chris Richardson of Deloitte Access Economics, soaring commodity prices and strong company tax revenue has provided the government some breathing space.