What does a 5 percent unemployment rate mean?

Ross Greenwood speaks to  Treasurer Josh Frydenberg  Australia’s unemployment rate has fallen to a seven-year low of five per cent.

Introduction: What does a 5 percent unemployment rate mean?

Ross Greenwood:  Good news today about the employment numbers. Although you can read it in a couple of ways. There were 5,600 jobs created in the past month. That’s not as strong as it has been previously, but the participation right now, in other words, the number of people actively trying to get into the workforce or be in it declined and so as a result, the unemployment rate fell to 5%. Now, 5% is the lowest it has been in six years. This is technically good news because of all the jobs created, it means, also, the government is picking up more tax.

I anticipate that the government, when it comes to its mid-year economic and fiscal outlook later on this year, which, I suspect, more than enough looking a bit like a mini-budget. I think that the government, at that point, will also announce that the first surplus will be brought forward because of the money that’s right now is pouring into its coffers as a result of these improved employment numbers, plus also, increased tax receipts from companies through the corporate sector.

Very shortly, we’ll go to Josh Frydenberg, the treasurer. I’ll try and get in to settle another argument that we are having on many news this evening because, you see, the Reserve Bank today has issued the new $50 note. That’s all great. It’s got all the features that the new tens and the fives, previously, have got. They’ve got raised parts for people whose sight impaired, there’s new security features in there.

The $50 is the most used note in Australia. There’s almost two-and-a-half times more 50s than there are any other type of note in circulation right now. They are the most important note. This is the reason why they’re going to get this one right, but what’s it called? We’ve had something of a divide here. Younger people simply don’t know. I’ve always known that the $50 note is a pineapple. That’s what everybody knows it is, a pineapple, but people said, “No, it’s not. You’re an idiot. What do you know?”

Then, I’ve, also, known that the $20 is a crayfish, a lobster. Somebody says it’s salmon. I’ve never heard that, a salmon. I want this settled. Also, I’ve always known the hundred to be an iceberg. They’ve got to have proper names. 131-873, its our number. There’s plenty more. Also, I have to talk to the treasurer about this evening. Let’s get him on line right now. Josh Frydenberg, many thanks for your time.

Interview with: Josh Frydenberg, Treasurer

Josh Frydenberg: Nice to be with you, Ross.

Ross Greenwood:  The treasurer, you should know about this. Is the $50 a pineapple, or not?

Josh Frydenberg: [laughs] I don’t know what the actual noun is for it, but I can tell you it’s good currency.

Ross Greenwood:  If somebody said, “I’ve got a pineapple for you,” would you actually imagine that they’ve got a $50 for you? You would know– Have you not a good colloquial term for our currency? You’re the treasurer, you should know this.

Josh Frydenberg: I know how to use the money. I know how to grow the money tree, but I can’t tell you. If someone said to me, “Josh, I’ve got a pineapple for you,” I’d think, “Well, that’s something to eat for dessert.”

Ross Greenwood:  There you go. Pineapples don’t grow on trees, Josh. They actually grow on the ground, those little bush thing. Anyway, I will leave it with you. I want to get to the important-

Josh Frydenberg: Money grows on tree.

Ross Greenwood:  That’s true, money grows on– I want to get to the employment number today.

Josh Frydenberg: Sure.

Ross Greenwood:  As I’ve said, you can read this in two ways. Clearly, the participation rate coming down means that it drives the unemployment number down, which is good. It’s six-year low, but, also, 5,600 jobs. There’s been a real conversation about casual workers and whether more employers have taken on casual workers and we know these cases that even Kelly O’Dwyer intervened in in regards to where the casual workers should get entitled in such as holiday pay, sick pay and the likes. Are you satisfied with the way in which the economy is traveling right now that the employment number we’re seeing, which is suggesting there’s full employment, that this is a true reflection of Australia’s economy?

Josh Frydenberg: Absolutely. I think the Australian economy is growing strongly. We saw that in the national accounts with GDP growth at 3.4% through the year, which was its fastest rate of growth since the height of the mining boom in 2012. We’re growing faster as an economy than any G7 nation and then much greater than the OECD ever reached. We’ve seen our AAA credit rating, Ross, reaffirmed by Standard & Poor’s, who praised us for our fiscal prudence and-

Ross Greenwood:  Who’d previously indicated that it was on a negative watch which is important to have that negative watch lifted.

Josh Frydenberg: Absolutely, and we’ve released the final budget outcome for the 2017-2018 year which showed that the deficit was it’s smallest in the decade and we’re on track to bring the budget back to bounty earlier than expected in 2019-2020. Then, we’ve been creating more than a million new jobs. Today, the unemployment rate fell to 5%, its lowest level since 2012. When you look at the breakdown between part-time and full-time workers over the last month, full-time employment increased strongly by more than 20,000 and is now at a record high of over 8,650,000 people [crosstalk].

Ross Greenwood:  Okay, but I noticed that Guy Debelle, the assistant governor of the Reserve Bank, yesterday, mulling the reasons as to why we’ve got such strong employment numbers, and yet what we don’t have is wage raises. This is not just a phenomenon here in Australia. It’s happened in other western nations also. It is true to say that you’ve got your employment rate pretty much at full employment, but it seems now that employers have changed their behaviour and this is the reason why you haven’t got any wage raises which, as you’re aware, is putting significant pressure on families.

Josh Frydenberg: The wage price index which is a euphemism for real wage’s growth was at 2.1% in the last national accounts. We would always like that to be stronger, but the advice of the Reserve Bank, and I’ve spoken to the Governor about this, is that as the market for labor continues to tighten as the economy continues to grow, we will see upward pressure on wages. We’ve already seen in some sectors, like the health sector, prices and wages go up.

Ross Greenwood:  You’re saying that sit tight, but the real issue, I would suggest that you ease up, because you’ve got house prices falling in Melbourne and Sydney, I noticed that the AMP Capital investors today indicated they believe, peak the trough, it could be 20% in Melbourne and Sydney. That means, you haven’t got a lot of houses being built. You don’t have employment necessarily growing in those areas. It could knock on to the retail sector. One of the real worries, I would imagine for Australia, is that you might have a situation where there’s a bit of a low in some of this economic growth as those house prices called out.

Josh Frydenberg: Our economic forecast for growth is still very strong and, as you know, the International Monetary Fund upgraded our 2018 growth forecast. In terms of the housing market, you’re right, the prices have come down for 12 consecutive months, but I think this is a healthy development, so does the Reserve Bank, as it’s taken some of the heat that we saw from five years of consecutive rises particularly in the capital cities.

As you know, APRA, which is the prudential regulator put the screws on investor lending in the housing market. With one-third of the residential housing stock in Australia in the hands of investors, this has had its desired effect which is to bring down prices and more first-time home buyers are actually coming in to the market which is very pleasing as well.

Ross Greenwood:  Okay, the other thing that’s also happened today is that the tax cuts, the small or medium-sized businesses, which you’ve brought forward by five years, has got through the parliament. The Labor Party has not opposed this. This was an area where you might have wedged the Labor Party to deny, potentially if they’d opposed it, small or medium-sized enterprise a tax cut. They have it great, it’s going through, but this is technically good news for those businesses.

Just one thing for you though, the $50 million revenue cut-off is to whether a business is considered small or large, say, $50 million revenue per year, aren’t there some businesses that make a lot more money on $50 million revenue than other companies? Wouldn’t some styles of businesses, consultancies, maybe some health funds, high margin businesses as compared with low margin businesses that’s loved they got out and actually might get over that $50 million revenue, but make a whole lot less money, don’t they as deserving of a tax cut?

Josh Frydenberg: Certainly, yes, this group of businesses, and there are 3 million of them, but I think corporate and unincorporated, employing around 7 million Australians are deserving of a tax cut. We think that the cut-off for a $50 million turnover is the right one. As you indicated, the Labor Party belatedly got behind this, but it was actually the coalition who developed this policy which will see real benefits flow through to small businesses across the economy.

If you are a cafe owner, these tax cuts that were now delivered through the Parliament today will put $2,500 a year into your pocket that wasn’t there previously. If you’re an independent supermarket or a pub, this could be an additional $12,500 in your pocket which allows you to invest in your business, to grow your business, to employ more people, to pay higher wages. It is good news for the economy. I have to say, the Labor Party, I’m pretty cynical about them because they started of

by saying, they wouldn’t support any tax cuts the companies above $2 million in turnover. They may change it to $10 million. Then they saw how important and successful their policy would be and the broad support that it had that they fell into but only very late in the game.

Ross Greenwood:  This is good news for those businesses. Of course, you’ve got to make a profit before you pay the tax and therefore take advantage of the tax cut. Just before I let you go, one final one for you.

Josh Frydenberg: Ross, we, also, got through the parliament just a few weeks ago an extension of our $20,000 instant asset write-off. This will be really good for businesses to invest in equipment and the likes.

Ross Greenwood:  There’s no doubt that has been successful. I will certainly admit that. Just one final thing. In regards to the Wentworth by-election this weekend, does the government have a contingency plan if it loses that seat in regards to the way in which the numbers were working in the house of the representatives?

Josh Frydenberg: There’s no doubt it’s going to be a very tight election. We have an outstanding candidate in Dave Sharma, the pleasure to campaign with him. But what I’m concerned about is Liberals thinking that they can vote for the independent and that not change the game in Canberra. It will have an impact on the momentum we have in the economy. It will have an impact on policies that may be supported in the parliament. What I would call on all Liberals, as they go to the ballot this Saturday, is to vote for a Liberal and indeed to vote for Dave Sharma because he offers the best chance as part of the Morrison government of continuing this economic momentum that has delivered over a million new jobs, had AAA credit rating, and a very improved budget.

Ross Greenwood:  Okay. Is my understanding correct that Cathy McGowan had indicated that when Malcolm Turnbull went out of the parliament, and this by-election was on, she made a statement, as I recall, saying that she would guarantee supply for the government while and/or until this by-election was held? But I presume, once the by-election is held, then all bets are off. It could really compromise the government, potentially even force you to an early election if it becomes unworkable in the house of representatives.

Josh Frydenberg: Ross, we are focused on winning on Saturday, and Dave Sharma is the next one [crosstalk]

Ross Greenwood:  I understand that, but you’re a politician, you’re always in contingency plans. Of course, you have to.

Josh Frydenberg: You’re wanting me tonight to talk about a hypothetical which we’re not there. Right now, we have a strong candidate in the field. It’s going to be a tough election to win. The polls would indicate that, but I do believe that Dave Sharma will not only deliver for the people of Wentworth, but he offers Australia the best chance of taking forward a strong economic position and policies.

Ross Greenwood:  Treasurer Josh Frydenberg, always good to have you in the program.

Josh Frydenberg: Great to be with you, Ross.

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