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Learning from New Zealand: Solutions for the Worker Shortage

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Governments have tended to use migration as the lazy solution to fill worker shortages, but a simple solution lies right across the ditch.

Commentary

In 2023, Australia’s worker shortage crisis changed from being unprecedented to being persistent.

Luckily, we only have to look across the ditch to see what can be done to fix it.

The job vacancy level in Australia currently sits at over 388,000, with one in five businesses unable to find the workers they need. Every job vacancy is a lost opportunity for a business to expand and invest in Australia’s future, and unfilled jobs mean unpaid wages.

Government should take note of this, if only because money not going into the back pocket of a worker, means money not collected in tax.

Analysis by the Institute of Public Affairs has found that the continued high level of job vacancies represents up to $32 billion in foregone wages, and up to $7 billion in foregone income tax revenue.

Notably, according to the Mid-Year Economic and Fiscal update released in December, the government has delayed approximately $7 billion in infrastructure spending because the country can no longer afford current spending commitments.

Governments have tended to use migration as the lazy solution to fill worker shortages. According to Australian Bureau of Statistics data released in December, net migration to Australia was nearly 520,000 in the 2023 financial year—by far the highest on record.

Throughout that period, however, worker shortages persisted. It is clear that migration is not the sole solution to this problem.

Fortunately, we only have to look across the ditch to New Zealand to find an economically sustainable way to address the issue.

New research from the Institute of Public Affairs found that, while New Zealand and Australia both experienced a COVID-related spike in job vacancies between 2019 and 2021, only Australia has not recovered.

The research shows that New Zealand’s job vacancies in 2023 were only 5.4 percent above what they were in 2019, whilst Australia remained 77 percent above 2019 levels.

Rather than rely on migration to fill job vacancies—net migration to New Zealand was half that of Australia’s on a per capita basis—the NZ government was the beneficiary of a higher labour force participation rate.

New Zealand’s participation rate is approximately 72 percent, whilst Australia sits at 67 percent. Between 2019 and 2023, New Zealand’s participation rate was consistently four to five percentage points higher than Australia’s.

About 90 percent of this gap can be explained by pensioner participation in the workforce. One in four pensioners in New Zealand work, compared to just three percent of pensioners in Australia.

This is because there are lower effective tax rates for workers and less red tape barriers for those who wish to work in New Zealand, specifically pensioners and veterans.

Pensioners and veterans in New Zealand are only taxed on their combined pension and employment income. This means that pensioners and veterans face an effective marginal tax rate potentially as low as 10.5 percent.

In contrast, Australian pensioners and veterans who earn $226 per week on average will see their pension reduced by 50 cents for every extra dollar of income earned.

This, combined with the notional income tax bracket, means that Australian pensioners and veterans are subject to an effective marginal tax rate of 69 percent should they choose to work more than a day and a half on minimum wage.

The federal government in November passed legislation to increase the annual threshold at which the pension begins to be reduced by 50 cents for every dollar they earn, from $7,800 to $11,800.

While a step in the right direction, this is not nearly enough to properly address the worker shortage issues facing the nation, and leaves the clawback—the main barrier to pensioner participation—in place.

In a recent survey by National Seniors, 20 percent of pensioners stated that they would rejoin the workforce if the excessive tax and red tape barriers were removed. If this were to occur, our worker shortage crisis would cease to exist.

This is a win-win-win policy for the government; it would solve our worker shortage crisis; allow pensioners and veterans to experience the dignity of work; and generate extra tax income to help fund critical infrastructure such as housing, schools, and hospitals.

The solution is simple. We need to adopt the New Zealand pensioner tax model.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.



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