Australia’s Worker Shortage is a Canberra Policy Shortage

In this article, Saxon Davidson contextualises and disseminates the findings of the IPA’s research into Australia’s worker shortage crisis and how that affects Australia’s economic freedom and prosperity.

Australia’s persistent worker shortage crisis is a major roadblock to the growth of our economy and our nation’s prosperity. There is no clearer example of how it is adversely affecting our infrastructure than in the housing sector.

Recently, Jobs and Skills Australia released their inaugural Annual Jobs and Skills Report, which revealed that 36 per cent of all occupations they assessed were in shortage across the nation in 2023. According to its report, this is a five per cent increase from 2022.

The report, which analyses labour shortages in separate occupational categories, found that 50 per cent of occupations categorised as ‘Technicians and Trades Workers’ were the most commonly short-staffed, with shortages experienced right across the nation.

Even more startling is the fact that all occupations in the ‘Construction Trades Workers’ sub-group, such as builders, riggers, and scaffolders, were also suffering from nationwide worker shortages.

Shortages in these fields threaten to completely derail the push by governments nationwide to increase Australia’s housing supply.

A submission from the Institute of Public Affairs (IPA) to the Senate Standing Committee on Economics, which investigated the Housing Australia Future Fund, found that the average quarterly number of new private houses on the market over the past two years of worker shortages is almost 20 per cent less than the two years directly prior to the Covid pandemic.

It should be the highest priority of the government that solutions be put in place to alleviate worker shortages and, in so doing, allow infrastructure to be built and maintained. Unfortunately, this is not the approach the federal government has decided to pursue.

To fill job vacancies, the federal government has announced that it has upped Australia’s migration intake to a record 1.7 million arrivals in the period to 2028.

Yet this unprecedented migrant intake is occurring amidst a housing and rental shortage, and is putting immense pressure on schools, roads, hospitals, and public transport.

IPA research has found that such a rise in net overseas migration will create a housing shortage of 252,000 dwellings in the period to 2028.

On top of this, the IPA’s figures show the aggregated cost of the housing shortage between 2023 and 2028 is approximately $142 billion, or $24 billion per annum on average, based on the cost of the extra housing needed to be built in order to accommodate this announced increase in migration.

The well-worn and lazy attempt to solve Australia’s worker shortage crisis unexpectedly, and without proper planning, increasing the nation’s migrant intake will only exacerbate one of the problems that it purportedly sets out to solve.

But there are simple, effective and proven solutions at hand. At a minimum, the federal government should enact simple tax reforms that will allow more Australians to work without being punished for doing so. Canberra should immediately lower the effective marginal tax rates of Australians who receive entitlements, including students on the Youth Allowance, to incentivise them to enter the workforce.

Currently, a student on the Youth Allowance can earn only $240 per week before their benefits start to be reduced by 50 cents for every extra dollar earned. If the student chooses to work even more and earn more than $288 per week, they face losing 60 cents on the dollar in their benefits. This, combined with income tax, means a student is potentially subject to an effective marginal tax rate of 79 per cent. This is why only four in ten of these students work.

It is more than a little strange that our leaders would seek to punish students with exorbitant taxes when it is this very cohort that would gain the most from experiencing the dignity of work while gaining vital life skills and making a measurable contribution to the economy. The combination of their income earned and benefits received should be taxed in the standard tax bracket.

This tax reform should also be extended to age pensioners and veterans, who face an effective marginal tax rate of 69 per cent should they choose to work.

Similarly, JobSeekers should have the limit they can earn before they start losing their benefits increased to facilitate and incentivise work, as was proposed by the Federal Opposition Leader just a few months ago. This would provide a gateway out of welfare dependency, help businesses find the workers they need, and allow Australians to have more money in their back pockets.

And more Australians working means more government revenue, which can be reinvested into economic and social infrastructure which benefits the whole community.

Australians want worker shortages to be filled without placing further stress on our infrastructure. IPA polling revealed that 70 per cent of Australians believe that Australians should receive first preference for jobs rather than new migrants, and that 60 per cent want a pause in migration until infrastructure and housing can catch up.

Australian businesses are desperate for workers to fill gaps in the labour market, none more so than in construction.

Worker shortages are a major handbrake on economic growth and cannot be filled by relying purely on a record surge in migration, when the consequence of that will exacerbate the very problems the policy seeks to solve. We have ready-made solutions to this crisis, right here in our own backyard. That’s where the government should be looking.