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Australia Pulls Job Stimulus Worth 5% of GDP in Test for Economy – BNN

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(Bloomberg) — Australia’s JobKeeper wage subsidy expired Sunday, bringing to a close the nation’s largest Covid stimulus measure.

Treasury estimates up to 150,000 jobs could be lost with the end of the program and acknowledges some firms will collapse without government support. This could hit pause on a hiring boom that’s seen unemployment fall to 5.8% in February from a pandemic peak of 7.5% and early fears of 10% joblessness.

If all other labor market variables remained unchanged, Treasury’s upper estimate of job losses would send unemployment to 7%, according to calculations by Bloomberg News.

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The government’s signature Covid-19 support program sought to keep workers attached to firms during lockdowns and other restrictions at an estimated cost of A$90 billion ($68 billion) — or around 5% of gross domestic product. The strategy, introduced at the beginning of the pandemic, was still subsidizing around 1.1 million workers at its conclusion, according to Treasury estimates.

While acknowledging the risks to these people, Treasury Secretary Steven Kennedy last week defended the decision to conclude JobKeeper. “The program has a number of features that create adverse incentives, which are likely to become more pronounced as the economy recovers,” he said.

Those sentiments were echoed by Reserve Bank of Australia Deputy Governor Guy Debelle, who said unemployment had fallen a lot faster than the central bank had anticipated. At the same time, he said “I don’t think we’re through the bumps and the unevenness yet. So it may not be a straight line from here.”

The RBA, in its February forecasts, predicted the jobless rate would be 6% by December this year and 5.5% at the end of next year. Under an optimistic scenario, it would fall to 4.75% by the end of 2022. Debelle said the bank hasn’t yet updated its outlook given the better-than-expected outcomes and will do so in its May update.

Upside Scenario

Since June 2020, Australia’s economy has generated more than 875,000 jobs and only shed positions in one month — September — that coincided with the southern state of Victoria’s second wave of Covid. The strength of the recovery suggests the labor market should absorb roles lost from the program expiring.

Job advertisements surged 7.2% in February and the RBA’s liaison with businesses indicated that some firms were having trouble finding suitable workers in select regions and industries.

Hiring should also be aided by New South Wales, the most populous state, scrapping a host of restrictions from Monday on the hospitality industry — one of the hardest hit by the pandemic — which should benefit businesses hamstrung by previous limits.

“The end of JobKeeper might mean a short spell in rehab for the economy, but its expiry will not be a medical emergency,” said Besa Deda, chief economist at St. George Bank. “The momentum in the jobs market will help the economy absorb its expiry. The unemployment rate should still end this year lower.”

Downside Risks

Yet the sheer scale of the program suggests there will be disruptions ahead. John Edwards, a former member of the RBA’s board and economic adviser to ex-Prime Minister Paul Keating, said JobKeeper’s removal represents “a fiscal contraction bigger than we’ve probably ever experienced.”

Australia’s border remains closed and isn’t likely to reopen until later in the year, at the earliest, leaving international education and tourism in flux. The government is assisting regions dependent on tourism and the airline industry via a A$1.2 billion package, yet further job losses are expected.

For Prime Minister Scott Morrison’s center-right government, the stimulus withdrawal poses a political risk. A rise in unemployment would erode the political capital accrued from the economy’s relative resilience at a time when popularity is already dented over the handling of scandals within parliament.

Last month’s jump in underemployment — or people employed who would like to work more hours — suggests there’s plenty of slack in the labor market.

“There is still more work to be done to lift hours back to pre-pandemic levels,” said Diana Mousina, senior economist at AMP Capital Investors Ltd. “There is still a larger than usual share of people who are working fewer hours because there is no work, there isn’t enough work or they have been stood down.”

She notes 167,500 people — or 1.3% of those employed — fit into this category and represent “the group that is most at risk of job loss after JobKeeper expires.”

©2021 Bloomberg L.P.

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

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Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

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The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

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Economy

Business leaders say housing biggest risk to economy: KPMG survey – BNN Bloomberg

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Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

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“What we’re seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago’s Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

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