Notes For The Opening Statement Delivered To The Senate Community Affairs Legislation Committee

Thank you for the opportunity to appear before the committee today. I’d like to set out some broader economic context for the bill and its intent to alleviate the crippling worker shortage facing our nation.

Forthcoming research by the Institute of Public Affairs has established the significant economic challenges facing Australia, which this bill seeks to alleviate. New private sector business investment, as a share of GDP—which is a critical measure of economic performance—is now at a record low of just 10.1 per cent. This is lower than the 16 per cent during the global financial crisis, lower than the 10.2 per cent during the early 1990s recession and lower than the 14 per cent during the Whitlam era.

Inflation is now at the highest it has been since the inflation target was introduced in 1993. GDP per capita, an important measure of living standards, is lower today than it was four years ago.

Productivity growth is at an anaemic one per cent, which is a drag on wealth and living standards. Debt at the federal level alone sits at about a trillion dollars, with rising interest rates set to increase debt servicing costs, by our analysis, from $20 billion a year today to $90 billion a year by 2030, which is more than double our current annual defence expenditure.

Red tape, including that faced by pensioners and veterans wanting to work, is now at a record high, having grown by 90 per cent since 2005—double our growth rate. Australia also has a rapidly ageing population, with a dependency ratio which is increasing, meaning more Australians who do not work are supported by fewer Australians who do work.

On top of this, and with direct relevance to the bill that’s in front of us today, Australia is facing an unprecedented nationwide shortage of workers across all critical sectors, with close to half a million job vacancies, which is 270 per cent higher than it was two years ago. This translates into around $32 billion of forgone wages and $7 billion in forgone income tax revenue. Yet, too often, governments take the easy and short-sighted path—for example, by further increasing Australia’s already high and unsustainable population growth rate, underpinned by mass migration.

Australia already has the second-highest share in the developed world of population born overseas, behind only Luxembourg. More migration is not the answer to the skills crisis. It will put more pressure on critical social infrastructure such as schools, roads and hospitals, which are already under pressure. Further, according to the most recent data from the Australian Bureau of Statistics, permanent migrants have an unemployment rate close to double that of the Australia-wide average, which puts more pressure on our welfare system.

The solution is to cut tax, red tape and other government restrictions on getting Australians into work. The bill before us makes an important step in the right direction, and much, much more can be done. IPA research has established that lifting the work bonus from $300 a fortnight to $600 a fortnight could encourage up to 20,000 pensioners into work. The proposed changes would mean that a pensioner or veteran could work two days a week on average before they started losing up to 69c on the dollar—which is a key reason why only three per cent of Australian pensioners work, compared to about 25 per cent in New Zealand.

Our analysis has also identified that the proposal before us will likely easily pay for itself in terms of direct fiscal costs, which are estimated at $145 million, with only around 10,000 pensioners needing to take up the scheme before the income tax to the government offsets that direct fiscal cost.

However, it must be remembered that many pensioners and veterans will work only part time, which is not suitable to the needs of many businesses.

The restrictions which are currently on pensioners and veterans fail to recognise the significant contribution that they have made to our nation, the experience they have and the fact that quite often they are highly skilled with an outstanding work ethic. Many fought for our nation and risked their lives for all of us. Instead of tinkering around the edges, governments must remove all tax and red-tape impediments on pensioners and veterans so they can work as much as they want without losing their benefits.

This is a no-regrets policy. More Australians working means higher government revenue through income tax, GST and payroll tax, which can be reinvested into social infrastructure and used to pay down our debt. Pensioners and veterans will be able to work more, which is a critical source of dignity, esteem and social connection, and businesses will be able to draw on a larger pool of workers, which will put downward pressure on costs, inflation and cost of living and will increase investment.

As I come to the close of my remarks, I would like to draw to the attention of the committee that, similar to pensioners and veterans, Australian students also face tax and red-tape disincentives to working. Currently there are almost 400,000 Australians aged 15 to 24 who are not working, studying or in training of any kind. In addition, the labour force participation rate of Australians aged 15 to 64 is 80 per cent; for students it is just 50 per cent.

A major contributing factor to this is that once students earn more than $450 a fortnight, much like pensioners and veterans, they lose 50c in the dollar in terms of their benefits, and they lose 60c in the dollar once they earn more than $540 a fortnight. Students, like pensioners and veterans, should be able to work as much as they want without losing benefits, to acquire the skills, experience and ethic they need to succeed in life.

In the context of the nationwide shortage of workers, I would as a final note like to draw the committee’s attention to one other critical area of reform, which is the criminal justice system.

Forthcoming IPA research has established that Australia’s incarceration rate is at a near-record high. At current trends, Australia will have the second-highest incarceration rate in the developed world, behind only the United States, which is commonly known as a mass incarcerator. Of relevance to the committee, up to one-third of Australia’s prison population are low-risk, non-violent offenders who, in the main, are not a threat to community safety.

This means around 14,000 prisoners could otherwise be given the opportunity to work coupled with a more suitable form of punishment, further helping to alleviate the worker shortage. Also, fewer people in prison means lower capital and operating costs, which can be reinvested to pay down the debt and to reduce crime of a violent nature and of a sexual nature through more police on the beat and longer sentences for such criminals.

Thank you again for the opportunity to appear here today. I look forward to taking your questions.