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Costello's folly « Previous | |Next »
October 17, 2006

We have a skills package that has just been put on the table by John Howard. Yet this package addresses a problem that isn't a problem according to Peter Costello, the Treasurer. This indicates that the Treasurer is not keen to admit to any problems in the economy under his watch that suggest poor economic management. Yet the skills shortage and the inflationary pressures it has caused do suggest poor economic management.

skillsshortage.jpg
Bruce Petty

Ross Fizgerald's op-ed in The Australian gives us the background. He says that the Reserve Bank of Australia first rang its first alarm bell about the shortage of skilled labour in November 2004 in a low key way. It talked in terms of localised pressures evident in some official wage measures that point to substantial increases in wages for skilled employees. Costello's response was to ackowledge that low unemployment in Australia leads to shortages of skilled labour in some areas. However, he saw that as a positive thing--a sign of success.

And that set the pattern for the next couple of years.

Four months later, the RBA raised interest rates by one-quarter of 1 per cent and it talked in terms of Ithe remaining spare capacity in the labour and goods markets is becoming rather limited causing inflationary pressure. Costello responded by saying that a shortage of labour is a good problem to have as it means that people can find work.

Yes but what about those who have a big mortgage? Increased interest repayments are not a good problem. The Treasurer understands that as he uses high interest rates to bash the ALP.

In its four monetary policy statements in 2005 the RBA continued to warn of the link between the skills crisis and interest rates.It drew attention to labour shortages are becoming increasingly broad-based across industries and skill levels and being most pronounced among skilled workers. In May 2006, with the consumer price index at the top of the target band, the RBA raised interest rates for the sixth consecutive time. Once again, Fitzgerald says, the bank cited labour shortages and once again Costello simply denied that link. He said that skills crisis is totally unrelated to monetary policy.

Totally unrelated? What about upward inflationary pressure due to tight capacity as a link?

Then in a speech last Wednesday night the Glenn Stephens, the new RBA governor, made it clear that there was a very good chance that capacity constraints (eg. the skills crisis) meant that interest rates were going to rise in November. The next day Howard spent $800 million to solve that "positive thing" called the skills crisis, which according to the Treasurer was a "good problem to have".

So where was the ALP's Shadow Treasuer on this flaw in Costello? Missing in action yet again? You would think that they would relish the opportunity to cut Costello down a peg by showing that he is not delivering a more prosperous and safe future.

| Posted by Gary Sauer-Thompson at 7:43 AM | | Comments (0)
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