From APEC HRDWG Wiki

In support of the Jakarta conference relating to the Human Resource Impacts of the Economic Crisis, Australia has submitted a case study draft and presentation of the impacts of and their responses to the economic crisis.

What Is Working in APEC Members’ Social Safety Nets and Labour Market System Policies? The Case of Australia

By John McKay, Australian APEC Study Centre

Australia has emerged from the Global Financial Crisis relatively unscathed and is generally regarded as the most successful performer among industrialised nations. In part this result is based on the patterns of trade that have been emerging over the last few years. Some two-thirds of exports now go to Asia, with China currently the most important customer for Australian products, and in particular its enormously profitable mineral and energy resources. Asia also emerged quickly from the Crisis, partly because of the huge stimulus packages put in place in China and elsewhere, and this has meant the demand for Australian exports faltered hardly at all during the Crisis.

Governmental Interventions

But credit must also be given to the policy responses of the Australian government. Its interventions were extremely large and timely – Australia was one of the first countries to put in place a series of stimulus measures, and relative to the size of the economy this was extremely significant. There was an immediate guarantee (valued at more than $A 70 billion) for deposits in Australian financial institutions, and stimulus spending worth $A 42 billion was rolled out very quickly. This included a cash payment of $A 900 to all taxpayers; tax breaks for small business making investments; approval of much new spending on infrastructure; large scale support for improvements in school facilities and a scheme for installation of insulation in some 2.2 million homes. The result was that Australia was one of the very few countries that never entered a recession, and the level of unemployment did not rise to the levels that had been predicted. Unemployment now stands at 5.3 per cent, certainly up from the 4.2 – 4.6 per cent range that prevailed before the Crisis, but much below most other nations.

Issues in Labour Market

There are still some worrying elements in the labour market – youth unemployment has increased and the long-term unemployment of a number of older workers is proving to be difficult – but given the international situation the outcome in Australia has been remarkable. One explanation for this low level of unemployment has been that employers, confident that any downturn would be relatively short, preferred to cut the working hours of their employees rather than retrenching them, thus retaining their skills for the expected recovery and avoiding re-hiring costs. The government also put much effort into skill development for those workers that had lost their jobs: Australia has for a number of years been suffering for labour shortages and has faced chronic shortfalls of skilled operatives in key areas such as the mining sector and efforts are now being made to train more local people rather than relying on the immigration of skilled workers. Special provisions were also made for problem regions with persistently high unemployment levels. Twenty such regions were designated for intensive support. Local employment co-ordinators were appointed and a series of special grants and local initiatives was enacted.

Conclusions

Overall, then, the impact of Crisis was not nearly as severe as the earlier downturns of 1982 and 1991, but the government estimated that in the absence of its stimulus measures the economy would have contracted by some two percent. All of this has been achieved without the creation of massive amounts of debt, and Australia’s public finances are still in remarkably good shape. Both the IMF and the OECD believe that in coming years Australia’s debt will be the lowest of any advanced economy, reaching 20 per cent of GDP in 2010 and peaking at 27.8 per cent in 2014 or less than a quarter of the average among developed nations. The IMF has stated that Australia will be one of only five advanced economies in which little or no medium-term adjustment will be needed to keep debt at safe levels. In part this was the result of the healthy state of the economy and of government finances in the period leading up to the Crisis, meaning that the government had a healthy war chest to devote to the task of shielding the nation. In addition Australia’s banks have always been very effectively regulated so that there were few of the problems of toxic debt that plagued many similar financial institutions around the world.

Critics of the government have pointed to some problems that emerged in the management of aspects of the stimulus package – and of the home insulation and the school building programs in particular. These have been real issues, and were at least in part the result of the governments overwhelming desire to feed money into the economy as quickly as possible, but overall it is the general judgement that the government’s performance in response to the Crisis was excellent.