Concluding comments
Australia’s current unemployment rate is at the lowest sustained level for 23 years, with the rate declining to around 6 per cent in late 2002, and below 6 per cent since late 2003. But unlike other times since the early 1980s when the unemployment rate has declined briefly to 6 per cent or less, the unemployment rate is forecast to remain below 6 per cent on average over the forecast horizon. There also seems to be scope for the unemployment rate to fall even further over the medium term, given ongoing economic growth and further policy reform.
The potential of the labour market to sustain low unemployment is a result of improved macroeconomic policy frameworks and extensive microeconomic reform over a long period of time.
A key theme since the early 1980s has been to increase the ‘speed limits’ on growth through structural reforms and institutions that are better designed to foster productivity and a sustainable expansion in employment. That process of reform involved decentralising employment arrangements, raising the capacity of the labour force through education and training, developing customised job support and outcomes-focused employment services and creating better incentives in the welfare and taxation systems to promote participation and employment.
Structural reforms have been reinforced in recent years by the adoption of a medium-term framework for the setting of both fiscal and monetary policy in Australia. Coupled with the increased flexibility across the economy flowing from the programme of microeconomic reform, this is helping to make the economy more stable, and less prone to the booms and busts of earlier decades which proved to be a major obstacle to steady and sustainable declines in unemployment.
While unemployment in Australia is now at 23 year lows at less than 6 per cent, some other developed economies have succeeded in pushing unemployment to even lower levels. Labour force participation in Australia is also relatively low compared with some other developed countries, particularly with respect to key age and gender cohorts, such as older males. Hence there is a need to further reform policies to reduce or remove impediments to participate in the labour force and to lower unemployment.
Australia is now moving into a period where it has moderate levels of unemployment but with the onset of new long-term pressures from the ageing of the population. As a result, labour and welfare policies will need to be attuned both to the shorter-term and to these ‘new’ longer-term demands.
The 2004-05 Budget includes a package of major initiatives that address directly these demands through increasing participation and productivity. The package includes measures to further reduce welfare traps for low and middle income families and delivers tax cuts. These will increase rewards from work and increase incentives to take on additional work, seek advancement and acquire skills. This is supplemented by a substantive investment in education, health, innovation and infrastructure.
These initiatives, together with the current solid macroeconomic environment, will enable Australia to achieve lower unemployment and higher labour force participation, provide a higher level of social wellbeing and help deal effectively and sustainably with the ageing of the population.