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Aged care workforce shortages require action from the Jobs Summit & resourcing for high quality care

While reforms to improve the quality of aged care are welcome and necessary, the government must also consider how to properly resource providers to meet higher standards.

Against the backdrop of stagnant wage growth and record low unemployment, expectations were high for the Labor Government’s Jobs and Skills Summit. Discussion at the Summit traversed a wide range of workforce issues, including sustainable wage growth, skills and training, and migration. The primary objective of the Summit, however, was clear – to address widespread workforce and skill shortages. Although criticisms of the Summit include concerns about the event being a “union power grab” and lacking representation from the “Big Four” banks, the event has the potential to catalyse a re-shaping of the economy to address workforce shortages.

In no part of the Australian economy are workforce shortages more economically and socially significant than in aged care. Within the sector, staff are key to delivering safe and high-quality services to older Australians both in their homes and in residential aged care settings. Staffing costs make up a vast majority (around 70 per cent) of the operational costs for aged care providers. Yet, widespread understaffing was highlighted by the Royal Commission into Aged Care Quality and Safety as a key driver of neglect and quality failures. The Royal Commission made several key recommendations for increasing the skilled workforce in order to improve care in residential aged care homes. However, COVID-19 lockdowns, border closures and high sector turnover of staff have subsequently exacerbated workforce shortages and made it difficult for providers to recruit and retain sufficient permanent and qualified staff to deliver an appropriate level of care. Recent reports indicate that there is a current shortfall of 35,000 direct care staff in the sector.

Workforce shortages in aged care are likely to further intensify in the short term, as the passing of the Aged Care Amendment (Implementing Care Reform) Bill 2022 through both houses of the federal parliament is expected to substantially increase demand for qualified registered nurses within aged care homes. This package of reforms includes the requirement that aged care homes have one registered nurse on site and on duty for 24 hours a day, seven days a week. Additionally, residential homes will be required to provide a minimum staffing level of 200 minutes of total direct care and 40 minutes of registered nurse time per resident per day, from October 2022. With as few as 5 per cent of aged care homes currently meeting these staffing levels, this renews concerns about workforce shortages given reports that a further 110,000 direct care staff will be needed in the next decade.

Intensified workforce shortages are occurring as providers increasingly struggle to remain financially viable, prompting major concerns about the financial sustainability of the sector. A recent report by the UTS Ageing Research Collaborative (UARC) finds that 60 per cent of aged care homes are currently operating at a financial loss. In committing to increasing the capacity of the aged care workforce, the Australian Government recently proposed a 25 per cent wage increase to the Fair Work Commission for aged care sector workers. Although the government have committed to funding part of these wage increases, it is not yet known how much of the additional labour costs will be borne by providers. Further, it is not yet clear whether changes to the funding model for residential aged care with the introduction of the Australian National Aged Care Classification (AN-ACC) will lead to sufficient government support to fund the required increases in staffing.

Our new study at UARC highlights the critical social and financial trade-offs that providers experience in managing their workforce. Our study finds that investment by providers in the quality of their workforce comes at a steep cost to their capacity to generate financial returns. Consistent with the recommendations of the Royal Commission into Aged Care Quality and Safety, we used workforce skills (more registered and enrolled nurses) and stability (full time employees) as measures of a quality workforce. These workforce attributes are expected to improve quality of care services provided to residents. However, persistent workforce shortages and high staff turnover have made it difficult for providers to maintain a skilled and stable workforce.

With workforce shortages forcing providers to hire less skilled and more temporary staff, a costly investment in full-time staff who can provide continuity of care and quality of service should be rewarded. However, our research finds that this investment does not pay off for providers in terms of their financial performance. Instead, it is providers with a comparatively less skilled and less stable workforce, and who provide a poorer quality of care to residents, that have stronger financial returns. Providers with a more skilled and stable workforce provide higher quality care to residents but suffer from worse financial returns.

It is problematic that that a workforce must be both skilled and stable in order to provide higher quality of care because providers experiencing workforce shortages will often employ temporary workers (i.e., a less stable workforce) in order to increase their proportion of skilled staff. Our research shows that this strategy does not improve quality of care. Yet, this is a likely scenario that will be faced by many providers who will struggle to meet the Albanese Government’s requirement of minimum levels of registered nurses in aged care homes.

Discussion around skilled migration at the Jobs and Skills summit may well offer a short term solution to workforce shortage issues, but will be unlikely to address the significant scale of shortages in the sector. The Victorian Government’s announcement of free nursing degrees may also alleviate some of the medium term pressure, though it could also have adverse effects for other states. The bigger challenge, however, is for providers to maintain a quality workforce while remaining financially viable. This is a dilemma for the sector which is likely to persist for as long as it experiences ongoing staffing shortages.

Medium and long term action on workforce shortages in aged care needs to be formulated at the national level and, importantly, this conversation must involve aged care providers of all sizes and include rural and remote providers. For providers to meaningfully commit to higher staffing levels that improve quality of care, the financial disincentives to meet these requirements must be addressed. Measures to address this challenge demand a combination of direct financial incentives for providers and reforming the pricing of care services.

In the short to medium term, this could include a financial incentive scheme that rewards providers that commit to upskilling employees, maintaining a higher mix of skilled and permanent staff, and reducing turnover of permanent staff. In the longer term, broader sector reform is needed in allowing providers greater scope to price their care services to reflect their investment in the quality of their workforce, as well as increasing price transparency allowing consumers to compare prices across providers.

Overall, if progress is to be made on improving the quality care that is provided to older Australians, the government must take action to address workforce shortages in the long-term as well as incentivise, rather than compel, aged care providers to maintain a higher quality workforce.

Nelson Ma is a senior lecturer and researcher in financial accounting at the University of Technology Sydney (UTS). His research focuses on understanding how the drivers of financial performance impact the quality of financial statements prepared by publicly listed companies. Nelson has recently published a series of projects in aged care, analysing quality of care and the financial outcomes of different business and workforce models.

David Brown is Professor of Management Accounting at the University of Technology Sydney (UTS). His expertise is in the design and use of management and accounting systems to address behavioural, decision making and coordination problems in organisations. He is best known for his work on management control system packages (multi-system design). David has a detailed understanding of key issues within the aged care sector, particularly as these relate to the management practices of service provider organisations.

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2022-09-02T23:19:26+10:005 September 2022|

Young people must be at the centre of the government’s jobs and skills plan

The new Labor government has a historic opportunity to boost young people’s wellbeing as part of its economic agenda—here’s how.

Three major challenges are limiting young people’s wellbeing and their chances of a sustainable livelihood.

The first is a mismatch between job vacancies and the young people equipped to fill them. National unemployment is low, we have record job vacancies and not enough skilled workers. Yet there are 770,000 people who remain part of our employment services system, which is 26 per cent more than before COVID and includes 111,000 young people.

As our economies respond to an ageing population and the climate crisis, new opportunities are opening up, especially in the social services and green transition sectors. But we don’t often turn to young people to bridge the skills gap. For example, young people make up less than one in ten of the health and social assistance workforce, our largest and fastest growing industry.

The second challenge is an outdated education and training system.

Less than half of learners in vocational education and training complete their training. Only one in three (34.4 per cent) young training graduates say their qualification was “highly relevant to their job” post training. It’s even worse for young people with a disability, with only 30 per cent of graduates reporting training as highly relevant.

The third challenge is a broken jobs ladder. The Productivity Commission found in the decade following the Global Financial Crisis, young people were the only group who had zero wage growth . This was the case regardless of education.

For too many young people, if they’re disconnected from the education system or thrown off the jobs ladder, they fall into a net where you don’t bounce but sink. It’s a net where you are sentenced to interact with a broken employment services system. It’s a net where mutual obligation and income support trap you in deeper disadvantage.

At the Jobs and Skills Summit, young people will want to see a future they can hold on to. Treasurer Jim Chalmers has stressed he doesn’t want a “fairy floss” government. On this, young people are key allies. They don’t want to be a part of a fairy floss future.

A critical question for the Summit and the subsequent Employment White Paper will be how we can redesign our employment and training systems so they’re fit for the future.

Here are five steps that can help us to convert training into decent work, build employment pathways that benefit young people, meet employer needs and empower communities.

First, recognise and include young people directly in decision making. In Minister Anne Aly, we have someone who gets the need for a coherent national youth strategy. She understands “transitions” from early childhood through to mature age are often artificially imposed and socially constructed. At the centre of such a strategy must be the voices of young people holding government to account.

The second step is to rebuild hope through a new youth guarantee that equips all young people for fulfilling jobs and careers. A better deal needs to be based, as the Treasurer has signalled, on wellbeing and capability, where young people can be the directors of their own show and our future. Decent and secure work underpins wellbeing. A new youth guarantee must deliver employment pathways that work in place, allow training to be converted into work, workplaces to be better places for training, and income support that makes all this easier—not harder.

The third step is to reimagine the role of government in the delivery of essential services, especially employment. Reimagining government in this way is not for the faint hearted. It requires a reorganisation of government to do more than manage contracts. They have to devolve power to local communities and work alongside them to shape youth employment strategies. They have to get back into the delivery game and help to benchmark best practice.

The fourth step is to reframe youth employment as a core part of social license for business and new social procurement targets. At the Brotherhood of St. Laurence (BSL), for example, we are seeing huge interest in our Given the Chance program, which works directly with businesses like ANZ and Arup to build career pathways for jobseekers marginalised in the job market. The Foyer model pioneered by BSL also recognises care, housing and employment must come together for young people to thrive.

The last step is to restore dignity to the education and care professions, especially early childhood. These are jobs that grow wellbeing for all. Unless we restore decent pay and dignity to these nation-building professions, this plan won’t be worth the paper it’s written on.

Travers McLeod is the Executive Director of the Brotherhood of St. Laurence, a social justice organisation working to prevent and alleviate poverty across Australia. This is an edited extract of an oration he delivered last week in Ballarat for the Menzies Foundation and Federation University.

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2022-09-05T08:51:15+10:0031 August 2022|

“Freedom within a framework” – how Australia’s universities can make a full economic contribution

Is now the moment to (re)introduce an independent buffer bodyfor the tertiary sector that will enable universities to respond to future jobs, skills and research needs?

The sense of excitement and optimism around the Government’s Jobs and Skills Summit demonstrates a growing desire to see diverse stakeholders and experts come together to solve complex problems. And rightly so. There is no simple or single solution to the collective economic challenges we face right now: increasing inflation, record numbers of unfilled jobs, critical skills gaps, stagnant productivity levels and real wage growth alongside a period of low immigration due to border closures. In addition, we’ll need smart, long-term solutions to address the structural challenges involved in linking supply and demand of high-level skills, rather than just reacting to pressures in our immediate economic environment – as compelling as these pressures may be.

Our universities have a critical role to play in identifying and delivering long-term solutions to these economic challenges. But what role exactly? It is encouraging to see a new consensus building that our higher education sector should play a more dynamic role in driving economic growth in Australia through the supply of high quality, adaptable, resilient graduates, alongside the application of research to drive innovation, discovery, create new jobs and improve society.

This is a powerful narrative that puts universities in a more active role in helping to shape the future economy. It’s a narrative that has been notably absent for the last decade. But now it’s back—so, what does it mean for our universities? And how can we ensure that their operating environment—funding, regulation, policy—is set up in a way that incentivises the outputs we need (high-quality, adaptable graduates alongside relevant, responsive research capability)? All this while also meeting social equity goals alongside minimum standards of quality and consumer protection. It’s a classic public policy challenge!

First, we need to recognise that the current system for higher education is not terrible. Indeed, we have one of the highest performing university sectors, delivering world-leading research and attracting millions of international students based on the quality of our education. So, what’s the problem?

The problem is that the current system is best, or most politely, described as “patchy”. Two decades of iterative reform packages have resulted in a set of funding, regulatory and policy frameworks that are driving sub-optimal outcomes, such as homogeneity of mission, prioritisation of research over teaching, over-reliance on international-student fee income, and reduced provision of STEM subjects. Individual universities have had to work around, not with, the current system if they wanted to play a more dynamic role in their local economy and in society more broadly. It’s no wonder, then, that so many of our universities have ramped up the number of international students as an alternative source of funding to respond to the huge demands on them.

So, what to do about it? How do we bring coherence and a clear sense of shared objectives back to our higher education system?

With the fair wind of the Jobs and Skills Summit at our back, now is the time to introduce (or re-introduce) a “buffer body” for universities. Professor Margaret Gardner, Vice-Chancellor of Monash University and former Chair of Universities Australia articulated this well last year, but it bears repeating. As someone who worked either for, or closely with, the UK’s buffer body for universities for fifteen years, I could not agree with Professor Gardner more strongly.

As an independent body, arms-length from both government and the sector, the body could bring together responsibility for funding, regulatory and policy arrangements for the full higher education – or even tertiary – sector in Australia. Working across the public and private university sectors, the body would take responsibility for research, teaching and innovation/commercialisation activity. Such a body would protect universities from short-term political changes, as Professor Gardner describes, but it would also facilitate smarter, more integrated and braver decisions based on long-term horizon planning for the sector. This would take into account the needs of businesses, economic conditions, students and society more broadly.

At the heart of the buffer body should be a recognition of the central role of universities to the economy and society in the twenty-first century. The principle of “freedom within a framework” could then be applied, as an effective public policy approach that balances innovation with the appropriate level of support and governance.

The very last thing this should be is a planning body for skills or research capability. Not only does history tell us that this level of central planning would fail—but it would also be entirely inappropriate for the universities sector. Universities are not public institutions. They are not like public schools or colleges. Universities are large, complex, not-for-profit organisations in receipt of public funding. They receive around half of their income from core public funding and have always had a strong sense of public purpose. The other half, however, comes from a range of revenue sources from international student fee income to commercial R&D investment to philanthropic giving. For our universities to thrive—for them to make the full economic and social contribution they are capable of delivering—they need to maintain the freedom they have to respond to the specific needs of the students, communities, businesses, governments and other partners.

So, what might this look like in practice? What does it mean to apply the concept of freedom within a framework?

For research, “freedom within a framework” would mean a shift in the balance towards more quality-related, block funding for research, along with the freedom to direct resources within the university. The framework would then drive quality and accountability by rewarding excellence in research and transparency. Research councils play an important role in the system but we need to put a stop to any political intervention in research grant outcomes. The principle of freedom within a framework would require a shift in balance towards more block grant funding, based on quality of research, giving universities greater capacity to direct research funding towards strategic priorities, including industry needs.

For teaching, “freedom within a framework” would mean a reversal of unhelpful discrepancies of fee levels in the job-ready graduates package. It would look like a return to a stable, demand-led system to ensure that every student qualified to enter, has the opportunity to do so, with clear information about what this might mean for their employment prospects. It would look like a stable funding environment for universities built on a cost-based, rather than price-based, model to remove any disincentives to provide a wide-range of programs, including STEM subjects. It would look like a system based on the principle of 50:50 shared contribution of cost between graduates and public investment (in line with best evidence of the balance of private-public benefit overall) at the system level. This would also have appropriate protection in place for graduates who chose to undertake critical lower-income roles that serve a social good, such as nursing. The “framework” for operating would ensure transparency and accountability of the sector by publishing clear, benchmarked, performance indicators in areas such as access, retention and graduate earnings in a way that can genuinely inform student choices. Moreover, it would hold universities to account for their performance. And all this alongside a risk-based quality assurance system that ensures a minimum entry standards and minimum standard of quality of provision for students.

For innovation and commercialisation, “freedom within a framework” would mean using smart funding and policy options to incentivise a step-change in the scale of business and industry engagement across our university sector. Again, based on the principle of rewarding excellence, a mechanism similar to the UK’s Higher Education Innovation Funding (HEIF) could incentivise shifts in the scale of external engagement from relatively low levels of public investment, and with very high levels of return on investment in terms of economic impact. With limited initial funding, HEIF was able to drive behavioural change and performance improvements across the sector in relation to innovation and business engagement. This is a great example of an arms-length body taking a longer view of the economic role of universities to establish a stable, quality-driven funding environment to drive outcomes for the public good. HEIF created the funding incentives to drive behavioural change and the sector responded, arguably in more innovative ways that had been anticipated.

There is precedent for such a body, of course, both in the universities sector and other sectors. There was the Commonwealth Tertiary Education Commission in Australia in the 1980s, and the Higher Education Funding Council (HEFCE) in the UK in the 1990s and 2000s. The UK disbanded its buffer body five years ago. It replaced it with a range of separate bodies for research, students and quality assurance. In doing so, it lost its capacity to make long-term, integrated and above all brave decisions for the UK universities sector. Unfortunately, the sector is now on the receiving end of a piecemeal, iterative policy environment, subject to the whims of short-term political and economic changes.

Now is the chance for the Australian Government to set the conditions for a higher education and tertiary sector that can help shape our future economy and society. With the right support and incentives in place, we will see our universities make a full contribution to both immediate and long-term economic challenges. We will see our high-performing university sector play an even greater economic role: engaging more closely with industry to help meet future skills needs; delivering the graduates who will drive productivity and real wage growth; producing the ground-breaking research that will transform society; and bringing research-capability and expertise to the table as it engages with its partners across a rich ecosystem for innovation.

Libby Hackett is the inaugural CEO of the James Martin Institute for Public Policy. Libby is an award-winning public policy expert and brings over 20 years’ experience working at the highest level of government and universities. She has held senior advisory and leadership roles in government, parliament, peak bodies, think tanks and private sector consultancy in Australia and the UK. Libby was selected to participate in the Prime Minister’s leadership training programme for outstanding public servants in 2010. She was named one of the UK’s Education Reformers of the Year by the Education Foundation for work promoting social mobility and access to higher education. She served as a Director on the UK Higher Education Commission and as an Advisor to the Browne Review of Higher Education Fees and Funding. Libby holds a Bachelor of Arts in Politics, Philosophy and Economics, and a Master of Arts from the University of Oxford and is a visiting fellow in global higher education policy at Crawford School of Public Policy at the Australian National University (ANU).

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2022-08-31T15:32:07+10:0030 August 2022|

Digital solutions to Australia’s youth mental health crisis

Digital technologies offer an opportunity to tackle Australia’s youth mental health crisis. But effective solutions will require us to think innovatively and listen to the voices of young people with first-hand experience.

Youth mental health is at a crisis point. Poor mental health is affecting nearly half of Australia’s young population; almost 40 per cent of 16 to 24 year olds reported a mental health disorder in 2020-2021. COVID-19 infections amongst young people pale in comparison (recorded cases only implicate 23 per cent of 10 to 30 year olds). Despite the mental health epidemic’s alarming scale, leaders have failed to respond with policy that effectively addresses the needs of young people.

There are several service gaps currently leaving young people vulnerable. Waiting times for psychologists are at an all-time high and, as more young people than ever are seeking professional help, the demand for support continues to far outweigh the supply. Transparent information surrounding psychological services and their availability is also lacking. Moreover, a lack of communication between health specialists, for instance general practitioners (GPs) and psychologists, means that young people often receive inappropriate treatment, leading to poor functional outcomes and despondency towards professional support options. Digital technologies offer the opportunity to address these service gaps and engender systems-reform to make mental health care more accessible for young people. The role of these technologies will be to complement high-quality professional care, while also alleviating the current burden on clinicians by making processes more efficient.

What are digital technologies?

“Digital technologies” is a broad term encompassing electronic tools, systems, devices and resources that generate, store or process data. Examples in the mental health space include smartphone apps (e.g., Headspace), online treatment programs (e.g., This Way Up) and smart technologies that track wellbeing (e.g., Beyond Now app). The advantage of digital technologies is that they are accessible to everyone who owns a smartphone (over 95 per cent of young Australians in 2022). They also tend to be far more appealing to younger generations whose high digital literacy allows them to easily navigate and integrate new technologies into their daily lives.

How can technology be part of the solution?

The pandemic demonstrated how rapidly new technologies can be built when innovative thinking is backed by the right funding. The same progressive thinking used to create digital solutions to the COVID crisis can (and should) be applied to solve current issues in mental health care. Here are four ways that digital technologies can improve Australia’s youth mental health crisis (figure 1).

Waiting lists

Funding should focus on the creation of digital waitlist platforms that track psychologists’ wait times and allow those seeking support to join a waitlist. Lists should be implemented according to local regions and stratified by speciality so that clients can be effectively triaged according to individual psychological needs. The United Kingdom has recently implemented this type of centralised system, creating an NHS mental health waiting list that guarantees patients will be seen by a professional within 18 weeks of registering. In Australia, this could be operationalised as a smart phone app where clinicians register their areas of speciality, pricing and current waiting lists. This would allow young people (and their carers) to easily search for a local specialist, view or join their waitlist, and be notified of any openings or cancellations that come up.

The kind of transparency provided by waiting lists will allow young people to seek alternative support options while they wait for the right professional. This platform would also dramatically improve the efficiency of the current referral system and offer a lifeline to struggling GPs who are often at a loss about where to send young people presenting with mental health concerns.

Mental health literacy initiatives

Most young Australians do not have the clinical awareness to understand their mental health, nor the health-systems literacy to navigate the healthcare system. Policy in this area should focus on developing digital mental health literacy resources that teach emotional awareness and healthy support-seeking behaviours. The “Transitions” program in Canada offers one effective example of how digital booklets can be provided to young people to improve mental health literacy and skills in seeking out support. In Finland, this program has been digitised to include lectures from mental health professionals and web-based learning modules given to students as part of their orientation to university.

In Australia, such initiatives must also teach health-systems literacy, which means clearly explaining the practical processes required to receive mental health care. For instance, how to receive a mental health care plan. We do not teach young people to drive without first teaching the road rules—and we should not be teaching emotional literacy without the skills to navigate relevant healthcare processes.

(Digital) communities

To address the underlying factors of social isolation and loneliness driving mental health issues in young people, policy needs to focus on building strong communities for young people. As professional support continues to be inaccessible for most, online communities offer young people an alternative support network where they can build social connections and develop valuable peer-support systems. While they are hosted on digital platforms, these communities facilitate in-person connections, while also giving young people the autonomy to discuss mental health concerns in a safe space driven by shared knowledge and support.

Young entrepreneurs are already building these digital communities around Australia. One recent example includes Uni-Link, a new digital platform that connects university students with shared interests (like the original Facebook platform). However, most of the funding for these projects comes from the private sector, including venture capital, who tend to prioritise returns on investment over quality control (only 3 per cent of mental health apps are evidence based). Governments should therefore create funding opportunities for high-quality initiatives that challenge young entrepreneurs to engage with research institutions and health professionals. Providing further resources, such as legal advice, will also help young innovators adhere to ethical and legal guidelines to create more sustainable, lower-risk products in the wellbeing sector.

Outcome Monitoring Platforms

One of the biggest opportunities offered by digital technologies is the ability to track outcomes of psychological treatments and tailor them to be more effective for young people. Digital platforms like Innowell are addressing this opportunity as they allow clients to track their symptoms, feeding this data back to their clinicians who can then tailor treatments accordingly. These platforms also allow for integrated health care, as the client’s entire health team (e.g., their GP, psychologist, and various other specialists) can access the platform to deliver holistic care that enables better functional outcomes.

Future iterations of these platforms need to be made more inclusive for young people from different cultural backgrounds, who may experience additional mental health stressors and have limited access to support. Funding the implementation of these platforms in regional communities will also be crucial, as mental health support remains virtually non-existent for young people in more remote areas. Finally, the implementation of digital platforms needs to accompany digital literacy initiatives that teach clinicians how to incorporate these new technologies into clinical practice. Resistance to change continues to be a huge challenge amongst health professionals and empowering clinicians to navigate digital solutions will be critical to ensuring the sustainability of these platforms.

Despite their potential for positive impact, funding for digital technologies should not be considered a replacement for investments in training mental health professionals and traditional psychological interventions. Caution must also be exercised in the development and implementation of these technologies, where careful consideration should be given to privacy concerns and ethical data usage. Bearing these limitations in mind, Australia’s wellbeing policy needs to be more progressive and enable the development of innovative technologies that deliver real outcomes for young people. Funding these innovative initiatives should be a top priority for the Commonwealth Government in October’s “wellbeing budget”.

Amira Skeggs is a researcher at the University of Sydney’s Brain and Mind Centre and the founder of Kindred, a not-for-profit social enterprise creating digital mental health resources for young people. She has worked across several mental health organisations and currently sits on the Raise Foundation’s Youth Advisory Council, where her work is focused on elevating young people’s voices to create more inclusive mental health initiatives. Amira graduated with first class honours and the university medal in Psychology from the University of Sydney.

Image credit: Alessandro Biascioli

2022-08-30T12:16:32+10:0029 August 2022|

Australia’s innovation future: an agenda to transform our economy

While fiscal stimulus applied during the COVID-19 crisis has boosted employment, the much bigger challenge remains productivity and wage stagnation along with climate change and energy transition. This will require an ambitious national reform agenda to transform Australian industry and create a more dynamic knowledge economy.

The Biden administration’s ambitious new industrial policy initiative, the CHIPS & Science Act, worth $400 billion in Australian dollars, once again confronts Australia with the question of whether we want to be in the forefront of science and innovation, or way back in the slipstream.

This legislation is the biggest five-year investment in research and development (“R&D”) in US history, doubling the budget of the National Science Foundation, and establishing a new Directorate for Technology, Innovation & Partnerships with a geographically dispersed network of Regional Technology Hubs.

Here in Australia we rightly congratulate ourselves on achieving near to full employment for the first time in fifty years, thanks to the massive fiscal stimulus applied during the COVID-19 crisis, together with net zero immigration. But this outcome is unlikely to be sustainable in the absence of measures to address longstanding supply-side issues, in particular the lack of investment in research, innovation and skills. It may be just a sugar hit, with limited impact.

What is clearly missing in Australia, by contrast with most other advanced economies, is a coherent and purposeful approach to industry policy. Done properly in the context of a “foresight” exercise, this would be designed to identify our current and potential areas of competitive advantage and enable a coordinated approach to the industries and technologies of the future.

Let’s reflect for a moment on where we are. Unlike the Norwegians with a resource rent tax and the world’s biggest sovereign wealth fund to underpin the future diversification of their economy, we have failed to take advantage of our once-in-a-generation commodity boom.

Essentially, the windfall gains from higher commodity prices have masked a structural deterioration in Australia’s productivity performance as a high dollar made much of our trade-exposed manufacturing uncompetitive. This was previously experienced as the so-called “Dutch disease” by the Netherlands with North Sea gas in the 1960s and 1970s.

Next came the UK with North Sea oil in the 1980s, where, as in Australia, deindustrialisation was accelerated by a consumption boom at the expense of investment. Only Norway has seemed able to learn from these episodes, and is now well placed to grow high wage, high productivity jobs in carbon-neutral industries.

The narrowing of Australia’s trade and industrial structure is reflected both in our precipitous decline in global competitiveness rankings and in the Harvard Atlas of Economic Complexity, which measures the diversity and research intensity of our exports. Here on the latest data we now rank 91 out of 133 countries.

Even resource-rich Canada has understood the need for energy transition and diversification of its export mix. How long can Australia maintain the lifestyle of an advanced country with the hollowed out industrial structure of an emerging economy? Nothing is guaranteed as Argentina found to its cost over the last century.

A symptom of the problem is our approach to competition policy, which has run into the ground with innovation-stifling market concentration and “market failure” in key areas of economic infrastructure. A particularly egregious example is NSW ports privatisation which boosted the sale price of Sydney’s Port Botany by placing an anti-competitive restriction on the Port of Newcastle.

This 50-year restriction effectively prevents the Port from developing a commercially viable container terminal, which would contribute to the economic diversification of the Hunter region, improve NSW freight and port efficiency and decongest roads and rail in Sydney. This is low hanging fruit for an industrial transformation agenda, in a region that urgently needs it.

As Chair of the Port, and someone involved in the BHP steel-making closure at the end of the 1990s, I have seen at first hand the disruptive social impact of such an event. The impact of declining coal production and exports will be similarly disruptive, possibly more so, without a properly designed strategic framework for economic transition.

Given that coal currently returns $4 billion a year in royalties to the NSW Government, there is a clear obligation to manage this transition, not just with the deployment of financial resources but also by removing the impediments to diversification. The model has to be the eastern Ruhr in Germany, which did this in a planned way, not the devastation of Appalachia in the eastern United States.

Further, on a national scale, it is of great concern that combined business and government expenditure on R&D as a proportion of GDP has slumped to 1.79 per cent, compared with 2.2 per cent ten years ago and 2.4 per cent on average across the OECD. Some countries such as Israel, Finland, Korea and Switzerland are increasing their R&D spend to 4 and even 5 per cent of GDP.

Paradoxically, given the rundown of public funding for higher education, universities have taken on the heavy lifting in research and innovation, mainly through access to increased international student revenues. The problem is not only that these revenues have taken a hit from COVID-19, but the research is not always in the areas where it can have most impact.

Given that the Commonwealth Treasury’s 2021 Intergenerational Report projects annual productivity growth of 1.5 per cent for the next 20 years as a necessary minimum to maintain living standards, we must look to the policy levers that will assist in achieving and improving upon that target. These levers should be designed to optimise Australia’s performance in science, technology and innovation, and to increase enterprise “absorptive capacity”.

However, not only have these levers been inadequate or entirely missing, they have scarcely featured in public discussion, with the media being more preoccupied with house prices and interest rates. As a result, individual states, including NSW, have had to pick up some of the slack, but this cannot compensate for years of policy neglect at the national level.

For example, NSW has devised a sophisticated R&D Roadmap which will form the basis for a new “industrial policy framework”, comparable with many similar jurisdictions. This is currently going through an extensive consultation process, and will also draw upon the recommendations of the NSW Modern Manufacturing Taskforce.

Meanwhile, the new federal Labor Government has come to office promising to “repurpose” existing programs and to introduce a new $15 billion National Reconstruction Fund, from which would be drawn loan guarantee and equity support. This is a substantial commitment, albeit spread over a number of years, which is intended to leverage co-investment with industry in priority areas.

The Fund will be based on the model of the Clean Energy Finance Corporation (CEFC) and will focus initially on advanced manufacturing, medical manufacturing and critical technologies, such as artificial intelligence and quantum computing. Other areas will include clean energy technologies, defence, transport and value-adding in resources and agriculture.

Along with other initiatives, such as the proposed Australian Strategic Research Agency and the ‘Powering Australia’ renewable energy plan, it will be part of a broader commitment to developing a more coherent as well as cost-effective research and innovation system. The problem in Australia has not just been one of market failure but “system failure”.

While additional funding is clearly necessary and welcome, there are significant gains to be made simply from reducing fragmentation and ensuring critical mass in individual programs. Commonwealth research and innovation expenditure is currently spread across 13 portfolio areas and 150 separate budget line items.

This challenge will be a major topic at the forthcoming Jobs and Skills Summit and associated industry roundtables. It might encompass a number of key components, the first being a national coordinating agency. There is scope to build on the CSIRO’s footprint while more closely emulating models elsewhere, such as Sweden’s Vinnova, the Netherlands TNO and InnovateUK.

The second component is enhanced support for public research, including “blue sky” research, or there will be nothing to commercialise. Universities Australia estimates that a 1 per cent increase in research funding will generate an additional $24 billion for GDP over a 10-year period.

Third, while everyone wants increased industry-university collaboration, Australia lacks the institutional structures to conduct this at scale. Successful examples around the world, such as the German Fraunhofer Institutes, UK Catapult Centres and ManufacturingUSA Institutes, bring stakeholders together in “innovation ecosystems”.

Fourth, it has also become evident how important “place-making” is for innovation and entrepreneurship precincts. Many of these will be grown locally, such as Aerotropolis and Tech Central in Sydney, but there is scope for the Commonwealth to provide logistic and financial support on a cooperative basis with the states and territories, especially in Australia’s regions.

Finally, industry policy will only be as successful as the skills that are brought to bear in the adoption of new technologies and business models. This is a question not just of funding but the most effective structures for capability-building, including closer integration of university and vocational education and training pathways.

Australia’s future will not be determined by any single program or initiative but by a system-wide, policy driven transformation of our narrow and unsustainable industrial structure. Nothing less will enable Australia to diversify its trade mix and escape the path-dependency of its traditional reliance on unprocessed raw material exports.

Of course, mining and mining-related technologies will remain important to the Australian economy. However, the focus can now shift to the much in demand critical minerals for newly decarbonising industries as well as to capturing entire value chains in areas such as battery manufacturing, green hydrogen production and, ultimately, green steel and green aluminium.

Despite the global challenges of inflation, supply chain disruption and the rapidly changing geopolitics of our region, the Albanese government finds itself in the best position in a generation to undertake a fundamental and long overdue reshaping of Australia’s economy. And reshape it we must.

Roy Green is Emeritus Professor and Special Innovation Advisor at the University of Technology Sydney, where he was Dean of the UTS Business School. Currently, he is Chair of the Port of Newcastle and the Advanced Robotics for Manufacturing Hub, and a member of the NSW Modern Manufacturing Taskforce, Australian Design Council and the Research Advisory Committee of the Centre for Policy Development. This article is based on an InnovationAus presentation in Canberra.

Image credit: Getty Images

2022-08-30T11:02:46+10:0018 August 2022|

Is there a financial rationale for building trains locally?

New research shows that by taking into account the broader financial benefits of domestic manufacturing, building key transport infrastructure locally can be the fiscally smart decision.

The NSW Government’s $2.3 billion order, made in 2014, for the purchase of over 500 new intercity fleet (NIF) carriages generated significant controversy. Unlike previous train purchases, this was the first procurement of trains by the NSW Government since the nineteenth century to include no domestic manufacturing. Citing a 25 per cent cost saving, then NSW Transport Minister Andrew Constance argued that building the entire train fleet overseas resulted in the best outcome for taxpayers. Despite opting for a consortium led by Australian engineering firm UGL (formerly Goninan, which was a major train builder around Newcastle), the NSW Government’s decision ultimately appeared to favour price over other bids which included at least some level of local fabrication.

Ironically, the NIF, which effectively marked the cessation of train manufacturing in NSW, replaces a train fleet reflecting the very best of domestic engineering and design. Frequently praised for its excellent ride quality, the InterCity V-set was a state-of-the-art train when it rolled off the production line at Comeng’s Granville workshops in 1970. It was also the first in the world to incorporate air-conditioning into a double decker stainless steel self-propelled electric train.

The question remains as to whether the decision to outsource manufacturing of new trains overseas, instead of supporting local industry and capability, delivers best value to taxpayers. This is a hotly debated topic. At present there is a tension between two primary schools of thought regarding public procurement:

  • The “best price” model: purchasing from the lowest cost supplier, thereby obtaining the best price through a competitive tendering process.
  • The “broader benefits” model: achieving broader benefits by purchasing from a domestic supplier or supplier which creates certain environmental (e.g., lower emissions) or social credentials (e.g., employs people with disabilities). This extends to support for innovation and development of industrial capability.

Whilst NSW has largely emphasised the best price school of thought in train purchases, other states—such as Victoria and Queensland—have sought to retain local train manufacturing through local content requirements. It is undeniable that manufacturing trains onshore generates a wide range of benefits for the local economy. The issue is whether the magnitude of benefits created outstrips the additional cost incurred. Minimum local content requirements also risk a reduction in competition, diminish the incentive for domestic industry to innovate and leave governments vulnerable to price gouging.

The challenge with the broader benefits model lies in determining its value and composition. Economic benefits generally rely on dollar estimates that can be readily challenged or discounted by budget constrained purchasing authorities.

My recent research with Rico Merkert overcomes this limitation by defining and estimating the broader financial benefits generated by onshore train production. Broader financial benefits comprise company spending in the domestic economy. This includes employee salaries, investment in research and development, expenditure on new equipment and the creation of exports. Given that first order corporate spending substitutes for government expenditures, it is appropriate to deduct them from a bid’s price.

Quantifying broader financial benefits into an adjusted price brings these factors to the forefront of decision making. It also allows procurement decisions to make a like-for-like comparison between domestic and overseas manufactured options.

To determine whether domestically built trains are cheaper when broader financial effects are considered, we examined four forms of manufacturing onshoring:

  • Trains completion works (e.g., NSW’s new Regional Rail Fleet). Train completion works are the simplest form of onshoring and include basic train fit out.
  • Train assembly (e.g., Melbourne’s new trains, Perth’s new suburban trains). Train assembly usually involves fabrication of an overseas designed train domestically from a mixture of local and imported parts. Unlike domestic manufacturing, a large portion of work is undertaken overseas, and the parts are put together like a kit onshore.
  • Domestic train design but foreign production (e.g., Queensland’s new trains designed in Australia but made in India).
  • Domestic train design and manufacture (e.g., Sydney’s Millennium train built in Cardiff, Perth’s second newest trains built in Queensland).

Importantly, we only considered additional financial benefits generated from designing and manufacturing the train in Australia. Financial benefits from activities such as train maintenance or depot construction are not included in our estimates as these would have taken place irrespective of whether the trains are manufactured locally or overseas.

The estimated price adjustments, using a hypothetical $10 million procurement, are:

Forms of onshoring Percentage price adjustment Price adjustment on $10 million of onshoring expenditure Additional cost incurred for $10 million of onshoring Net gain/loss on $10 million of onshoring
Train completion works 5% $500,000 $833,000 -$333,000
Train assembly 30% $3,000,000 $2,375,000 $625,000
Domestic design and foreign production <5% (value extremely volatile to order size) $500,000 (based on 5%) $333,000 $167,000
Domestic design and manufacture 50% $5,000,000 $4,170,000 $830,000

Given the price differential between domestic and foreign manufactured options (generally 20-25 per cent), this illustrates that best value is obtained when trains are both designed and manufactured in Australia. This is due to the pace of financial benefits created outpacing increases to cost. Better value is still obtained when train assembly is undertaken in Australia. However, the same cannot be said for train completion works, and the result is marginal for trains which are designed locally but produced overseas.

Inclusion of broader financial benefits in public procurement will only alter decisions in the presence of a competitive domestic industry. Our research has found that current approaches adopted in public procurement practice undermine the health of domestic industry. In terms of practical policy recommendations, our research suggests that government purchasing agencies:

  • Improve collaboration with suppliers to draw on their expertise and effectively use spare production capacity.
  • Maintain consistent and stable order volumes. Peak-to-trough demand stifles investment.
  • Avoid the spreading of orders between manufacturers so that local firms can achieve critical mass.
  • Ensure that financing structures do not skew the playing field in favour of overseas manufacturers.
  • Move away from parochial decision-making that fails to take a whole-of-government and whole-of-nation approach to balancing costs and benefits. This includes regional local content requirements. Federalism poses particular challenges for Australia given the states purchase rolling stock, but broader economic and social policy responsibility—for areas such as social security, industry and trade—are Commonwealth responsibilities.

Although NSW and much of Australia has regressed from building state-of-the-art trains, our research illustrates a pathway towards restoring capability whilst retaining competition and incentives for innovation. When the broader financial benefits of train production are reflected within an adjusted price, designing and manufacturing trains onshore delivers the best value for money.

This provides powerful research evidence in support of government policies seeking to lift Australia’s production capability through domestic procurement.  With geopolitical tensions and supply chain disruptions arising from COVID-19, our findings could have broad implications for government procurement across a range of advanced manufactured goods including defence equipment, information technology, clean energy generation and medicines. Whilst the estimates will be different across sectors, the principles outlined in our research are likely to be generalisable and challenge the simplistic consensus on offshoring manufacturing that has developed in recent decades.

Buying locally manufactured trains is not a subsidy or form of social procurement but the most fiscally responsible course of action for governments to take in jurisdictions which possess this capability. Indeed, if social, strategic and environmental benefits are considered, these likely further strengthen the case for domestic procurement. The days of unabashed offshoring of manufacturing seem numbered!

Christopher Day is a PhD student in economic and industrial strategy at the Institute of Transport and Logistics Studies, University of Sydney. Prior to this, Christopher worked in both public and private sector roles in London and Washington D.C where his work encompassed the fields of spatial economics, innovation policy and insurance. Christopher holds a Master of Philosophy from the University of Cambridge and graduated with First Class Honours and the University Medal from the University of Technology Sydney.

Image credit: Getty Images

2022-08-30T11:05:44+10:008 August 2022|

Making capital inclusive for all women

We should reimagine how capital markets can better back women entrepreneurs, especially those at society’s margins, and boost women’s economic security more broadly. The design of a new venture capital fund announced by the New South Wales Government can demonstrate what’s possible.

Last month’s NSW state budget was packed full of reforms and investments in the future. The Treasurer, Matt Kean, had promised to put women’s economic participation at the centre. According to the chair of the Expert Reference Panel of the NSW Women’s Economic Opportunities Review, Sam Mostyn, he delivered in a big way. But can greater access to better capital push things even further?

As part of its wider effort to empower women economically, the government will introduce measures to support women entrepreneurs and women-led small businesses. Most notably, it will create a venture capital (VC) fund for women-led start-ups, named in honour of the late, great fashion leader Carla Zampatti.

We know that women entrepreneurs are less likely than their male counterparts to receive VC funding to grow their businesses. Over the past few years, solely female-founded Australian companies raised significantly less per funding round compared to all-male founding teams, according to research by Techboard. Evidence from overseas suggests women founders are asked different questions by potential investors. Since networks are crucial in this domain, and only a fraction of Australia’s VC firms are led by women, it’s not hard to see why there’s a gender investment gap.

There’s a need to debias VC activity and fill the missing finance this bias creates. The Zampatti fund can help on both counts. But more is needed to truly close the gender gap in financing businesses, especially for women who experience compounding forms of disadvantage. Too many women lack access to the high-quality, “patient” capital they need to sustainably innovate and scale up their business. We have to reimagine how capital markets can better back women entrepreneurs, especially those from the economic or social margins, and boost women’s economic security more broadly.

Feeding into the government’s review, the James Martin Institute for Public Policy developed an idea for a government-backed impact investment fund to support women from disadvantaged backgrounds, such as refugees or those in rural communities, to grow their small businesses.

This idea aligns with the Expert Reference Panel’s suggestion for the NSW Government to provide “direct social impact investment to women-owned and led businesses, start-ups and enterprises”.

The impact fund would crowd in private capital, including from banks that recognise the opportunity to connect with future business clients, and support women denied capital due to factors such as a lack of credit history or weak social ties with potential investors.

Something like it could be part of the Zampatti fund.

Regardless, there are at least three innovations that would help ensure that the design of the government’s new venture capital fund expands women’s economic security and prosperity in an inclusive way.

First, make finance adaptive to women’s lives. No one’s life is linear or simple – finance should recognise this. The new fund should factor in the multifaceted demands on women’s lives and how this affects business operations. The most obvious example is care responsibilities. Beyond merely tolerating these considerations, the fund should proactively encompass financing for childcare or other supports to allow parents to balance commercial and caring duties.

Second, build the relational infrastructure to reach disadvantaged women. Entrepreneurs trying to build businesses are located everywhere, from the suburbs of Western Sydney to rural centres and farms. But the kind of support and capital they need isn’t typically designed to actually find or empower them. Investors at the new Zampatti fund should spread out across the state, well beyond affluent parts of Sydney, and deploy human-centric design to actively engage potential investees. They should link into community organisations, local business associations, incubators supporting refugee entrepreneurs, and others who can identify dynamic but less connected women entrepreneurs, and then make every effort to engage with them in their own places, languages, and circumstances.

Finally, prioritise investments that create good jobs. Small and new businesses are the engine room of jobs growth in Australia. The new fund should back businesses that not only create jobs, but will sustain good ones, especially for women. This would propel women’s economic security more widely. While there’s no universal definition, we might think of good jobs as those that are well-paying, respectful, safe, secure, flexible, career-advancing, and purposeful. Far from being a feel-good category, such criteria can be rigorously integrated into investment strategies. The US investment firm Two Sigma Impact, for example, deploys a data-driven, scientific approach to identifying companies worthy of investment based on their commitment to good jobs because of how this tracks long-term value creation.

These three design innovations will help the Zampatti fund to reach and benefit more women, from diverse backgrounds, and respond to the real social and economic barriers they face. Making the economy more equal for women, it turns out, requires us to remake finance too.

Dr Vafa Ghazavi is Executive Director for Research and Policy at the James Martin Institute for Public Policy.

Image credit: Julieanne Birch / iStock

2022-09-01T11:50:07+10:0028 July 2022|

Future-proofing the Australian economy

While Australia is doing well on full employment, it’s time to prepare for the next downturn by upgrading the economy’s recession-fighting toolkit.

When a jobs summit was first announced back in March it had two goals: to return the economy to full employment and to revive Australia’s stagnant wage growth. High unemployment and low wages had assailed the Australian economy for the previous six years and were seen as the key challenges faced by the post-pandemic economy.

How times have changed. Since then, the labour market has exploded. The unemployment rate has fallen to 50-year lows and inflation has spiked to over 5 per cent, and while wage growth has yet to surge in official statistics, it is widely expected to rise over the rest of the year.

In the four short months since the jobs summit was announced, the full employment problem has been all but eliminated with job vacancies almost equal to the number of unemployed for the first time in…ever. Accordingly, the proposed agenda for the Jobs and Skill Summit in September has pivoted to a focus on skills, immigration and industrial relations reform. These are supply-side issues tailored to a labour market in which demand is no longer a pressing concern.

While the sun is shining

However, while the possibility of recessions and unemployment has slipped off the news cycle, policymakers should keep demand management at the forefront of the reform agenda. The best time to prepare for the next downturn is today when there is time to properly upgrade the economy’s recession-fighting toolkit.

The current surge in job growth has been driven by the unprecedented twin boosters of high spending (fiscal policy) and low interest rates (monetary stimulus). However, both of these measures of economic support are now being withdrawn. And while it is unlikely that the unemployment rate will rise substantially for the rest of 2022, the risk of a downturn or recession hitting the economy in 2023 or beyond remains real.

This is because the long-term causes of “secular stagnation” that helped push the pre-pandemic Australian economy into an economic malaise still remain. Secular stagnation—a theory popularised by Larry Summers after the Global Financial Crisis—describes how an ageing population, rising inequality, low public investment and an increasingly dominant technology sector all combine to create an economy with low growth, interest rates close to zero and high unemployment.

These long-term trends have not disappeared—if anything they have gotten worse. So, while the current Australian labour market remains “white hot”, policymakers should use the jobs summit to prepare for when the Australian economy inevitably cools down and faces the prospect of a recession.

Stabilising the ship

What should policymakers be doing today to ward off tomorrow’s recession?

The first step should be to expand and formalise fiscal policy’s recession-fighting powers through the creation of new “automatic stabilisers”.

An automatic stabiliser is an economic policy that tries to offset economic fluctuations without any direct intervention by policymakers. The budget already contains a number of automatic stabilisers. For example, the JobSeeker payment automatically increases government spending when the labour market slows and more people become unemployed, and cuts spending back when the economy surges. The reverse is true of our income tax system which drains money out of the economy when wages, profits and house prices increase and offers taxpayers financial relief when they fall.

Automatic stabilisers are powerful recession-fighting tools because they respond far quicker than policymakers can design new legislation or economic packages. But our current set of stabilisers remain sadly out of date.

Claudia Sahm, a economist formerly from the Federal Reserve, has proposed a new set of automatic stabilisers fit for the twenty-first century. Her core proposal is a policy of automatically sending out additional welfare payments whenever the unemployment rate rapidly increases. Instead of having pensions and welfare payments set at a fixed rate, they could be automatically set to rise whenever the economy weakens, as measured by official ABS statistics.

In the Australian context, this could mean a top-up to the JobSeeker payment whenever the unemployment rate rises above a certain level. Alternatively, the bonus payments could be targeted more broadly to a wider group of low-income households based on tax data, as was the case with some of the Covid support payments.

Low-income households are highly likely to spend any additional money the government sends to them—they have a very high marginal propensity to consume. This means that the additional payments would flow very quickly into the wider economy, boosting spending just when the economy needs it most. Automating the process means that the payments can be sent out without waiting for Parliament to approve the stimulus which can often delay critical economic support.

Writing the pre-nup for a GST holiday

Income tax cuts are often deployed by economists in an attempt to stimulate the economy in the face of a downturn, given that they put more money in the hands of Australian consumers. However, income tax cuts are often saved by the majority of households that receive them, rendering them a fairly inefficient way of fighting off recessions. For every dollar sent to households, only a fraction is spent.

This is not true however of a reduction in the Goods and Service Tax (GST). Temporarily cutting the GST can be a very effective form of fiscal firepower as it creates an immediate incentive to Australian households to spend money today to benefit from a 10 per cent discount on all goods and services consumed. For households who are on the fence about buying a new fridge or a second car, this tax cut would provide a time-limited incentive to increase their consumption just when the economy most needs it. Even better, the only way to take advantage of the tax cut is to go out and spend money in the economy: by definition this is a tax cut that cannot be saved.

But there is a catch. The GST is regulated by agreement between the Commonwealth and the state governments and all the politics that the National Cabinet inevitably entails. Cutting the GST was considered as a policy response during the Global Financial Crisis—but the politics were considered too difficult at a time when speed was of the essence.

That is why negotiating a “pre-nup” for a future GST holiday would be a perfect focus for policymakers when the storm clouds are far from the horizon. Such an agreement between the states and Canberra would outline in what circumstances the federal treasurer could declare a GST holiday and who would pay for the tax cut (the Commonwealth Treasury in all likelihood).

By pre-negotiating how, when and why a temporary cut to the GST would be implemented, we could give the federal government a new powerful tool in its recession-fighting arsenal.

The best time to repair the roof is when the sun is shining. While the Australian economy does face a different set of issues today, in the long run the risk of recession remains real. Rising inequality, higher debt levels and an ageing population have created an economy in which interest rates are permanently lower and fiscal policy will play an increasingly important role stabilising the economy. Policymakers should recognise this and update our fiscal firepower with new ideas and new technology so we can ensure that full employment is a permanent feature of the Australian economy.

Dr Zac Gross is a lecturer in economics at Monash University and a former economist at the Reserve Bank of Australia.

Image credit: Treasurer Jim Chalmers and Prime Minister Anthony Albanese are planning a jobs summit in September. (AAP Image/Mick Tsikas)

2022-08-30T11:03:52+10:0025 July 2022|

How immigration policy can help solve Australia’s underpayment of migrant workers

Focusing on both employment law and how we design visas could help address the systemic underpayment of migrant workers.

In Australia in recent years, there has been concern over workplace exploitation of migrant workers. Originating from the 7-Eleven Inquiry that found a large company-wide scam where workers were required to repay sections of their wages back to their employer following payment, thereby circumventing minimum award wages, these concerns led to a series of public inquiries, including most notably one led by Allan Fels and David Cousins, known as the Migrant Worker Taskforce.  Some of this taskforce’s recommendations have been implemented to penalise non-compliant employers. Others are still in train and may take on fresh directions under a new Labor government, with a historically different approach to workplace enforcement and employment law than the Liberal-National Coalition.

One key characteristic of this policy area is, however, bipartisan: most policy recommendations and legal changes to date in Australia focus on domestic employment law and punishment of non-compliant employers, rather than changes to Australian immigration law and policy. Changes in immigration law to effect changes to migrant worker exploitation have been largely superficial or have focused on key visas rather than the entire immigration program, such as rebadging the 457 visa as the Temporary Skill Shortage (TSS) visa. This change did not really remedy some of the main concerns with the prior visa, but did give it a new name, thereby addressing the reputational damage that the old name represented.

…immigration programs can be designed to minimise workplace exploitation and to increase adherence to workplace rights.

Yet, there are good reasons to believe that any exploitative behaviour on the part of employers could be countered with changes or improvements to both employment and immigration settings. Experts on regulation argue that visa design matters for the capacity of workers to craft convincing legal arguments in their favour when bringing workplace disputes. Good regulatory design might make a difference to the rights of working migrants. Even small regulatory changes could potentially have an impact on outcomes. On this basis, scholars such as Manolo Abella and Graeme Hugo have included visa design in their criteria for evaluating best practices for temporary migration schemes. In other words, immigration programs can be designed to minimise workplace exploitation and to increase adherence to workplace rights.

My most recent book, Patterns of Exploitation, demonstrates that temporary migrant workers are disproportionately overrepresented in court and tribunal cases brought by migrant workers. This analysis encompasses 907 court and tribunal cases brought by 1,912 migrant workers in Australia, Canada, the UK and the US.

The overrepresentation of temporary migrant works remains true even factoring in their overall much higher representation within immigration flows than other categories, such as permanent skilled migrants (“work”), spouses (“family”), international students (“students”) or refugees (“humanitarian migrants”).

The table below highlights the rates of temporary migrant workers bringing court cases between 2006 and 2016 as a percentage of:

  • The total population of migrants bringing cases over a ten-year period (“M”)
  • The general migrant population (“P”)

Temporary migrant workers are disproportionately overrepresented as litigants in claims enforcing workplace rights violations, irrespective of regulatory differences between countries in industrial and employment laws and how they are enforced.

…it is predominately temporary visa status—rather than the details of those temporary visas—that appears to drive this outcome in terms of reported instances of workplace violations.

California, Australia and Canada have very different employment law systems, yet in all, temporary migrant workers are heavily overrepresented as claim-bringers. The United Kingdom is the clear outlier here, however. This probably has more to do with poor immigration data in the UK historically and its strong reliance on migration from EU countries (categorised as “other”) to fill temporary skill shortages (prior to Brexit), rather than reflecting rates of litigation among temporary migrant workers.

Engagement in the labour market does not appear, by itself, to explain this dissonance across major visa types. Although permanent migrant workers are also employed at high rates, and are overrepresented within the database of litigants in Australia (at 15 per cent), they are not overrepresented to the same extent as is the case for temporary migrant workers.

This finding is important because it suggests that it is predominately temporary visa status—rather than the details of those temporary visas—that appears to drive this outcome in terms of reported instances of workplace violations. Being in Australia temporarily on a TSS compared with a Working Holiday Visa, for instance, does not appear to contribute to higher rates of litigated complaints among these migrants—the temporary status overall is the central factor.

Similarly, work visas differ substantially in their design in all four countries yet, outside of the UK which suffers, as noted, from problematic immigration data historically, temporary migrant workers as a broad category are overrepresented in those migrants bringing workplace complaints.

This leads to a central policy recommendation for immigration policymakers: if visa design does influence workers’ propensity to bring violation complaints and, in some instances, to succeed as complainants, it is at the very aggregate level of visa design, namely whether the visa is temporary or permanent, rather than the level of fine regulatory detail.

Small features of visa design do not appear, at least on the available evidence, to make a substantial difference to complaint rates. This may not be surprising as a shared component of temporary visa design is dependency—either on an employer, a sponsor, or certain visa conditions, for ongoing legal immigration status.

From a policy perspective, the core issue therefore appears to be the number of temporary work visas permitted within an overall immigration program compared with permanent migrants and whether the visas permit portability and pathways to permanent status, rather than the minute detail of sub-visa design.

As such, a second policy recommendation is that in consulting around and designing the federal Budget, the levels of permanent and temporary migrant admissions be considered collectively rather than a focus alone on permanent levels. This potentially would also provide the general public with a more detailed understanding of the immigration program and the interaction between temporary and permanent streams. This has likely implications for other areas of policy analysis, such as domestic and migrant worker unemployment.

In short, focusing alone or predominately on employment law will probably not provide the full solution to tackling the issue of the labour market exploitation of migrants. With a new federal government, the time is ripe to bring immigration policy design squarely back into the discussion of workplace conditions of migrant workers.

Anna Boucher is Associate Professor in Public Policy and Comparative Politics at the University of Sydney and a Research Stream Lead at the James Martin Institute for Public Policy. Her book Patterns of Exploitation: Understanding Migrant Worker Rights in Advanced Democracies will be published by Oxford University Press. She has advised the Australian and UK governments, as well as international agencies, on the workplace rights of migrant workers, skilled immigration policy and immigration statistics.

Image credit: Farm workers packing freshly harvested herbs (pixdeluxe/iStock)
2022-08-30T11:04:24+10:004 July 2022|

Child responsive budgeting: Why Australia needs to put children front and centre in policymaking

For Australia to become more inclusive—where no one is left behind—children need to be front of mind for policymakers when developing and implementing our post-Covid recovery framework.

As a prosperous nation, Australia should be one of the best countries in the world to be a child. But it’s not. According to a 2020 UNICEF report ranking rich countries on child wellbeing outcomes, Australia ranks 32 out of 38 rich countries for child wellbeing. We rank 35 out of 38 countries for children’s mental wellbeing.

Australia might be considered the lucky country, but with complex economic and social challenges on our horizon, luck will not be enough to set up future generations for success.

One way we can improve outcomes for children is to follow the money. Governments often spruik their budgets as having “something for everyone”. However, it is rare that Australian budgets pay specific attention to children.

A brief analysis of Commonwealth Budget speeches demonstrates that children are mentioned infrequently. In the 2021-22 Budget, “children” was mentioned three times in the context of the announcements on women’s safety, while “child” was mentioned once in the context of preschool funding. Additional childcare funding was also announced, but this was in the context of workforce participation, particularly for women, rather than to improve outcomes for children. In the 2017-18 Budget, “child” or “children” were mentioned seven times with reference to programs addressing family justice, child exploitation, child sexual abuse, children’s cancer, schools funding, and childcare.

One meaningful way to address this policy gap and put children front and centre of policymaking is through child-responsive budgeting.

What is child responsive budgeting?

While national and subnational budgets allocate resources to address the needs of children (i.e., through funding for education), thinking about children explicitly while constructing a budget, rather than retrospectively, is a relatively new practice.

A child friendly budget is one that adequately addresses children’s issues, such as poverty, malnutrition, illiteracy or child protection. The child friendly budget rests heavily on the system upon which it is constructed, implemented, and evaluated.

Deliberate investments in children will yield future returns by producing a healthy and productive workforce. Greater public investment in children is also likely to result in higher earnings, reduced crime and reduced welfare dependence.

Like gender responsive budgeting, a child responsive budget is not a separate budget for children. Rather, it is a tool to consider the current and future needs of children when developing policy and allocating resources. It is also a way to examine how policy change, as well as changing socio-economic factors, can impact children.

Which countries use elements of child responsive budgeting?

In Scotland, the government introduced the “Getting it Right for Every Child” policy with eight wellbeing indicators to guide engagement with children and young people. Elements of this were enshrined in legislation in 2014. Recognising that enhancing income support to low-income families was vital to improving outcomes for children and young people, the Scottish Government doubled its child payment in 2021. Advocacy group Children in Scotland have called for budgets to be built for children’s wellbeing to address the fundamental causes of inequality and other long-term systemic challenges. It argues that making Scotland the best place for children to grow up is about more than just outcomes-based budgeting, but about systems-change governing.

In New Zealand, there is a Child Wellbeing and Poverty Reduction Group that sits in the Department of the Prime Minister and Cabinet. Prime Minister and Minister for Child Poverty Reduction, Jacinda Ardern, wants New Zealand to be the best place in the world to be a child. The Group is leading the development and implementation of New Zealand’s first wellbeing strategy for children and young people. There are signs that its focus on children is paying off: in February 2022, Prime Minister Ardern announced that child poverty was continuing on a downward trend with an additional 66,500 children lifted out of poverty.

In 2019, New Zealand introduced its first “wellbeing” budget. While not specifically targeting children, the approach moves beyond just looking at economic metrics such as GDP, to include a much broader range of outcomes—including human health, safety and flourishing—to assess the success of policies. While it is debated whether wellbeing budgeting has been successful, New Zealand has been able to shift the conversation away from economic growth as being the primary metric of national success.

Putting children at the centre of Australian policy

How can we think about policy making in a child-centred way? Here is what policy could look like if it was designed and implemented to be more child-centric.

Child-centred childcare policy

In many policy documents on childcare funding in Australia, the focus is on the improvements to workforce participation, particularly for mothers, and childcare affordability, rather than funding and delivering child-centric early childhood education. Policy commitments could focus on ensuring the best quality early childhood education for children—from infrastructure and curriculum, to ensuring our early childhood educators are highly skilled and renumerated accordingly.

Paid Parental Leave

Increasing the amount of Paid Parental Leave available to parents, particularly fathers, will yield many benefits for children, including improvements to emotional and physical health and greater diversity of day-to-day role models. Studies identify positive links between father engagement and child development, including greater cognitive ability, superior emotional development and higher social aptitude.

Income support

A very high proportion of children experiencing poverty live in families who rely on government payments. Permanently increasing these payments, including JobSeeker, family and single parent payments will reduce child poverty. In Johann Hari’s book Stolen Focus, he cites a large study by the British Office of National Statistics which found that if there is a financial crisis in the family, a child’s chances of being diagnosed with attention problems goes up by 50 per cent. If a parent must make a court appearance it goes up by nearly 200 per cent.

A UNICEF report found that the factor that had the strongest impact on a child’s wellbeing was being able to spend time with family. Providing additional income support to those families on low incomes, who may need to work multiple jobs, would free up time and the headspace for parents to spend additional time with their children.

Climate change

In Australia, 59 per cent of young people consider climate change to be a threat to their safety and 71 per cent name it as their biggest environmental concern. Three out of four adolescents in Australia want their government to act on climate change. There is emerging research that demonstrates that integrating child-centred climate change adaptation initiatives into the community can build the resilience of households and communities, as well as of children.

Making child responsive budgeting a reality in Australia

Here are six big ideas that could shift the dial on how we think about children and their place in Australian policymaking.

  1. Advocate for analysis of the 2023-24 Budget from a child-centred perspective. This would lay bare how much of the budget focusses on children—and what proportion of spending goes beyond funding to the states and territories for education and health.
  1. Call for greater analysis of children in the policy development process. Real change in public policy requires consideration of children at the earliest stages of policy development, not simply reporting child-related measures as an afterthought in budget papers. This will require cultural change and prioritisation of children in government policymaking processes, which will take training and leadership across the public service and consistent demand for child-centred policymaking from decision makers.
  2. Advocate for better data to underscore the importance of improved public investment in children. Governments rely heavily on data to tell the story of policy successes. Efforts to delve into the experience of other countries, especially OECD and G20 economies, to inform Australian policy would be welcomed.
  1. Advocate for the next national Intergenerational Report to include analysis on the future trajectory and needs of Australia’s children. The Intergenerational Report is heavily skewed towards analysis of Australia’s ageing population. Including analysis on the future needs of Australian children will be important to highlight policymaking gaps, as well as opportunities to think about the future of work and the future of the economy. We must invest in these areas now to ensure Australian children will have the tools to thrive in the next economy.
  1. Encourage peak bodies and interest groups to develop policy ideas for a child-centred budget. Policymakers are very receptive to evidence-based policy ideas generated outside of government. Groups should start to think about what the centrepiece of a child-centred budget would be.
  1. Socialising and promoting the idea of child responsive budgets is a great first step. Encouraging policymakers to think about the issue—and perhaps include it as a “fresh new idea” in briefings for the new government could be all that is needed to pique the interest of a minister looking to make a mark.

Dr Alicia Mollaun is the Senior Manager for Economic Policy at Equity Economics and Development Partners, a firm committed developing solutions to complex challenges domestically and internationally through more inclusive growth. Alicia has previously worked at the Department of the Prime Minister and Cabinet, the Department of Foreign Affairs and Trade, and in the Office of the Deputy Prime Minister, the Hon. Julia Gillard, MP. Alicia has a PhD in Public Policy from the Crawford School at the Australian National University.

2022-07-27T10:14:08+10:0020 June 2022|
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