Michael Keenan (Stirling, Liberal Party) Share this | Link to this | Hansard source

My question is addressed to the Treasurer. Would the Treasurer outline to the House the results of the July labour force survey? What does this indicate about the benefits of the government’s economic management?

Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I thank the honourable member for Stirling for his question. I can inform the House that the labour force in the month of July just passed showed that an additional 21,800 Australians were able to find a job. And they were, nearly totally, full-time jobs. This means that although we have a record number of people that want to participate in the labour market—a participation rate of 65 per cent—we still have an unemployment rate which is the lowest in 33 years. That rate is 4.3 per cent. Over the last year there have been a quarter of a million new jobs created in Australia. That is net new jobs: after you allow for those people that have lost work, the number of people in net terms who have gained work in Australia over the last year has been 250,000. A quarter of a million Australians have come into the workforce, and many of those have come off welfare. People who otherwise would have gone onto a disability pension, people who otherwise would have been on a single parent pension—these people are now joining the labour force, they are now looking for work, and the good news is they are now finding it.

Managing the economy at a time when unemployment is at 4.3 per cent brings a whole range of new challenges. One of the challenges, of course, is that in some areas of the country we now have a labour shortage—that is, we have more jobs than there are people to fill them. As you might imagine, that puts pressure on wages and on inflation. Therefore, it takes a great deal more care to manage inflation when you are at very low levels of unemployment. It would not be possible to manage the inflationary pressures if we were operating under an award system of industrial relations or a pattern bargaining system of industrial relations, because what would happen is that you would get wage settlements taken from profitable areas of the economy and applied across the board—general wages increases and general inflation.

I said earlier that an unemployment rate of 4.3 per cent puts pressure on inflation. At the moment, on an unemployment rate of 4.3 per cent, the Reserve Bank’s official cash rate is 6½ per cent. That 6½ per cent is still lower than the cash rate was when unemployment was nearly double what it is today, and that is a fair comparison. When we were back in 1996 and the unemployment rate was at 8.3 per cent, we were not getting pressure from full employment or labour shortage. In fact, we had a big margin of unemployed labour which was acting to keep a brake on wages, and yet, even though the unemployment rate was nearly double what it is today, the cash rate was higher. If you want to go back to the early 1990s when unemployment was around 10 per cent, the mortgage rates were still higher than they are today, and that is a fair comparison, because you are comparing a monetary policy in the context of capacity in the economy. So, when you actually view interest rates and compare them to the context of employment, the fact that unemployment is so low and yet the interest rate is lower than at periods when there was much higher unemployment shows you how far we have come in the Australian economy. And we have come a long way. It could not have been done if we had not reformed the budget, got rid of debt, improved the tax system and improved the waterfront. If we had not had Welfare to Work and all those measures it could not have been done. These are the policies that have put people back in work, and putting people back in work is the object of economic policy—to give young Australians a start in life and to give families security in employment. This is the goal of economic policy, and we must continue to keep unemployment low in this country.