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Young People Can Only Get A 'Highly Paid Job' If The Government Fixes The Economy

When wages and jobs don't grow, it's like trying to run up a down escalator.

14/03/2017 9:05 AM AEDT | Updated 14/03/2017 1:24 PM AEDT

Assistant Minister to the Treasurer and the man charged with finding solutions to the country's housing affordability woes, Michael Sukkar, has a simple solution -- a "highly paid job" is the "first step" to owning a home.

But he is simply repeating what former Treasurer Joe Hockey said when he advised Australians wanting to buy their first homes to "get a good job that pays good money".

They are right; many highly paid people own not just their first homes, but also investment properties with the help of taxpayer-subsidised negative gearing.

When wages and jobs don't grow, it is like trying to run up a down escalator, which results in the build-up of household debts.

This is an absurd world we are now living in, where wages of ordinary workers stagnate and executive salaries skyrocket; where well-paid MPs receive taxpayer funded allowances to pay for mortgages while staying in their investment properties in Canberra; where ordinary citizens struggle to own their first homes or pay mortgages while investors enjoy negative gearing.

Recently released ABS figures show that private sector wage growth has posted a record low for the second consecutive quarter, and the increases are getting smaller, shrinking from 3.6 percent to 2.3 percent, to 1.8 percent.

The public sector is not doing any better. It is constantly facing job cuts as governments -- federal and state -- outsource public services or use labour contractors.

The Senate inquiry into the exploitation of workers on temporary visas has termed the widespread deliberate falsification of employment records and the systemic underpayment of wages and entitlements a "national disgrace".

A recent report, coming soon after the revelation of the Australia Post CEO's obnoxious pay package, shows that there was a 22.6 percent hike in salaries of the NSW Treasury's top brass, now accounting for 41.1 percent of all its salaries-related expenses, costing taxpayers an extra $5.6 million a year.

As wage and job growth stagnates while house prices skyrocket, household debt soars, reaching around 125 percent of GDP, one of the highest in the world, according to the Bank for International Settlements.

Mortgages make up the majority of that debt. Despite record low mortgage rates, average Australians are still sacrificing a far higher share of their income to pay mortgage interest (let alone principal) than when mortgage rates peaked in 1989-90. Australians' private debt has soared to 187 percent of their income, from about 70 percent in the early 1990s.

Like lead in a saddle bag, these outrageous debt loads act as a dead weight on households and the economy.

When wages and jobs don't grow, it is like trying to run up a down escalator, which results in the build-up of household debts. Like lead in a saddle bag, these outrageous debt loads act as a dead weight on households and the economy. Phillip Lowe, the RBA Governor, has recently warned that low wages growth combined with record household debt was a combustible situation.

Michael Sukkar backed up his advice with his own personal experience and wanted to see young people leave university as he did to forge a career. In his own words, he succeeded because "the economy was so good".

Is the economy "so good" now? Can he describe it as "so good" when full-time jobs decline or wages stagnate or household debt soars?

According to the latest ABS figures, there are around 40,100 fewer people working full time now than there were a year ago. The 2016 calendar year witnessed the weakest employment growth since 2013. At the same time, most Australians are working fewer hours as low-paying, part-time jobs surge.

Thus, since the government does not want to take up the politically challenging suggested partial remedy to housing affordability through reforms of the capital-gain taxation, it should put its money where its mouth is. That is, the government should pursue policies that really help the economy grow robustly and inclusively.

Unfortunately, however, there too the government is failing. As I wrote in one of my recent blogs, neither corporate tax and top rate cuts, nor slashing of public social and infrastructure expenditure, which the government sees as the only solution, are a proven path to inclusive growth.

The government also cannot depend on the RBA to inflate the economy. As acknowledged recently by the RBA Governor, fears of inflating housing bubbles are stopping the Reserve Bank from cutting interest rates to boost the economy.

The government should pursue policies that really help the economy grow robustly and inclusively.

Therefore, the government needs to listen to the advice coming from the IMF that debt-financed public infrastructure investment -- not slashing social expenditure, especially at a time of slow growth -- is the way to go to reignite the economy and create good jobs.

Instead of scaremongering about Australia's public debt (currently at around 37 percent of GDP), far below many OECD countries and the 60 percent threshold of the EU, the government should also listen to the advice of the former Reserve Bank Governor, Glenn Stevens, that this is the best time to borrow when the real interest rate is negative and at an historic low to support the RBA's efforts to "dial up the growth we need".

With vigorous wage and full-time employment growth, young people can follow the Hon. Assistant Minister's advice and trot the path that he traversed to afford a home.

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