Finance Federal Budget Albanese’s Budget reply meets with mixed reaction from economists

Albanese’s Budget reply meets with mixed reaction from economists

Anthony Albanese's speech has met with a mixed response from economists. Photo: AAP
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Opposition leader Anthony Albanese has won plaudits for committing a future Labor government to higher childcare subsidies.

But economists warn that his and the Prime Minister’s shared focus on local manufacturing could erode our living standards.

After the federal budget drew strong criticism for failing to address the recession’s impact on women, Mr Albanese used the Budget reply speech on Thursday evening to commit a future Labor government to $6.2 billion in childcare reforms.

He said high costs combined with today’s tax and transfer settings meant it was financially irrational for second earners in a household – often working mums – to work more than three days a week.

“This derails careers,” he told Parliament.

“It deprives working women of opportunities they’ve earned. And it costs workplaces – not just day-to-day productivity but years of valuable experience and knowledge and skills.

“If I’m elected prime minister, I’m going to fix this.”

Mr Albanese proposes to raise the Child Care Subsidy from 85 per cent to 90 per cent of costs, while also scrapping the annual subsidy cap ($10,560), softening the taper rate at which support is reduced, and increasing the subsidy cut-off from $353,680 in household income to $530,000.

He said the reforms would cost $6.2 billion but “boost women’s workforce participation, boost productivity and get Australia working again”.

More freedom for families

Grattan Institute CEO Danielle Wood said the proposed changes represented “an extremely important economic reform”.

Although she would have liked a 95 per cent subsidy, Ms Wood told The New Daily the reforms broadly mirrored Grattan’s suggestions in the lead up to the federal budget.

The think tank calculates that 55 per cent of Australian families (394,000) would pay less than $20 per day per child under Labor’s childcare policy, whereas today only 35 per cent of families (257,000) pay less than that.

“The taper rate – the rate at which you claw back the subsidy – would happen more slowly, and that is actually really important for the incentives,” Ms Wood said.

“Because one of the big issues at the moment is that, as you work more and your income rises, you don’t just lose subsidy on the extra days [you work and need childcare], you’re losing it on days one, two and three that you’re working as well.”

Prior to the budget, Grattan released modelling showing a $5 billion investment in childcare would deliver a $11 billion boost to GDP.

Responding to criticism of the budget, Social Services Minister Anne Ruston said: “Women can take advantage of driving on the new infrastructure and roads.” Photo: AAP

Asked whether opening up the subsidy to households that earn up to $530,000 was a fair use of taxpayer money, Ms Wood said it wasn’t a major issue as so few families earned near that threshold.

“At the moment, you’ve got a really sharp cliff at $350,000, which does create some strange incentives, so all they’ve done is remove that,” she said, adding that the administrative benefit of simpler rules outweighed the cost of helping a small group of families that didn’t need the help.

Ms Wood said “it was really disappointing” that the Morrison government included no such reforms in the budget, as reducing childcare costs would have boosted the recovery by enabling parents to work more hours.

Blueprint Institute chief economist Dr Steven Hamilton made a similar point.

“Childcare is clearly a very important area of reform in Australia that would drive productivity and improve, in particular, the participation of women in the workforce, and also improve outcomes for kids,” he said.

But offering support to higher-income families was expensive and wasteful, he added.

Good politics, bad economics

As for Mr Albanese’s manufacturing drive, Dr Hamilton said the local industry was too small to warrant such a significant policy focus.

“I think we should have an environment that’s supportive to manufacturing, but I don’t think it’s a good idea to favour manufacturing over other industries … because if you look at our top 20 export industries, only one of them is manufacturing: it’s number 20, and it’s beverages,” Dr Hamilton told The New Daily.

“The rest of our top 20 are natural and agricultural resources and services.

“So, if I looked at the future of the country … it is services: it’s in focusing on things like higher education and training, and supporting new services start-ups.”

Dr Hamilton’s view of investment in manufacturing was supported by independent economist Saul Eslake, who went even further in his criticism.

According to Mr Eslake’s interpretation of the 2018-19 national accounts, “manufacturing in Australia has below-average productivity”.

His estimates show that manufacturing as a sector produces $61 of value for every one hour worked – compared to the national average of $86, $293 for mining, $60 for construction, and $201 for financial services.

“So it stands to reason that if you increase the share of GDP of a sector with below-average labour productivity, like manufacturing, especially if it’s at the expense of a sector that has above-average productivity, like mining, then you’re going to reduce overall labour productivity,” Mr Eslake said.

Asked whether that would lead to lower living standards, the economist replied: “Of course it would. Which is what it did when for 80 years [after Federation] we tried to have a bigger manufacturing sector by forcing Australians to pay unnecessarily high prices for badly made goods.”

Like Dr Hamilton, Mr Eslake said the ‘Made in Australia’ rhetoric was good for winning votes but did little for the economy.

Rewiring the nation

The third pillar of Mr Albanese’s pitch was a pledge to upgrade the energy grid to take “account of the rise of renewables as the cheapest new energy source”.

He said he would set up a Rewiring the Nation Corporation to rebuild the grid – a new government-owned entity to which he pledged $20 billion in equity or loans.

The corporation would have no obligation to deliver a financial return, other than covering its costs.

Dr Hamilton backed the reform in principle and “said there’s no question that the Budget on Tuesday night was very light on green stimulus.”

“Talking about electricity transmission is absolutely right … [because] the wires are what’s holding back the ability of renewables to decarbonise our economy,” he said.

“But the thing I would say about Albanese is that he’s put this $20 billion sticker price up – and there’s no detail.

“So right idea, but now he needs to do the work to tell the country how we would that.”