Nick Xenophon’s Answer to the Agricultural Labour Shortage Is Clumsy and Ill-Advised

A labour shortage crisis is developing in Australia’s agricultural sector, following an earlier decision by the Federal government to impose stringent taxes on foreign workers.

The so-called backpacker’s tax will see overseas workers levied at a rate of 32.5% from 1 January, 2017. It means that, for every dollar foreign workers earn, they’ll have to pay 32.5 cents back in taxes.

If this was intended to discourage temporary visitors from doing odd jobs while living in Australia, it’s worked. Too well, perhaps.

The industry is now urging the government to change its position on the backpacker’s tax. It is growing increasingly alarmed by the prospects of a severe labour shortage for the 2017 harvesting season.

So, who better than a politician to fix a problem politicians created in the first place? Step up Senator Nick Xenophon.

The ABC reports (emphasis mine):

A proposal to allow unemployed people to earn $5,000 picking fruit before their welfare benefits are affected is unlikely to stop an impending labour shortage, a Riverland citrus grower has said.

Senator Nick Xenophon proposed that rules on how much people on benefits could earn should be relaxed so that unemployed Australians could take on agricultural jobs typically filled by overseas workers.

‘…Senator Xenophon said the measure would help food producers cope with a reduction in backpacker labour, which he was a consequence of the Federal Government’s incoming backpacker tax.

…“This [labour shortage] is a disaster that’s looming this season,” Senator Xenophon said.

Quite right. Mr Xenophon is right about one thing. More than anything, this whole episode once again lays bare the incompetency of government officials. Try as they might to do good by everyday Australians, their intentions are often misplaced. So what do they do instead? They backpedal. In creating solutions, they create problems where none existed. The actions of politicians leave us sitting here trying to pare between two possible scenarios: 1) That they know what they’re doing, and 2) That they haphazardly concoct quick fixes once they realise the damaging effects of earlier policymaking.

In any case, this new stop-gap measure to address the expected decline in foreign labour is innovative, if nothing else.

As the ABC reported, the new proposal would see the currently unemployed given the chance earn $5,000, while retaining existing benefits privileges. In theory, this would help unemployed locals take up jobs that were once the preserve of foreign workers. (Mr Xenophon, of course, didn’t bother asking himself why locals avoid taking up these jobs in the first place. So we won’t either, even if we have some ideas as to why that might be…)

These jobs would, for the most part, be in harvesting and packing. At present, overseas workers fill roughly 75% of these positions.

Yet, while it seems like a noble idea to help both the agricultural sector and the unemployed, the proposal is likely to fail before it even gets off the ground.

For one, do a significant number of unemployed have the financial mobility to up sticks and relocate to outer suburbs and the country? Would $5,000 be enough to offset the benefits of actually moving? And is this something people would be prepared to do, especially those with young families? As with anything, the idea could work for some. But every single policy is designed to benefit someone. The only questions are: Do they benefit the right people, and do they cover the broadest possible spectrum of the targeted demographic? In this case, while the answer to the first question may be ‘yes’, the answer to the second is a half-hearted ‘probably not’.

The devil is in the detail

Mr Xenophon’s proposal would see unemployed workers pick and pack fruit for up to eight weeks in order to earn $5,000. Why eight weeks? Because, taking the $5,000 amount into account, it would roughly equate to a minimum wage. Anything that people earned beyond that would start to eat into their benefits. Clearly, Mr Xenophon believes that people would extend their stays for longer than that. At which point, agricultural businesses would have their pickers and the government could start cutting back on benefit payments. Win-win? In theory, yes. But what if people — of those that decide such an arrangement could work for them — don’t hang around for more than eight weeks?

Citrus producer Riverland’s Ben Cant provides gives us an insight into the potential effect on the industry:

Our harvest goes for up to six months and we really need people who are going to come and stay… otherwise, it’s more training and changes with staff, and that affects the consistency of our outgoing product.

At the end of the day, we’ve got a business to run that requires six months’ worth of employment we need to maintain that in the steadiest way possible.

In other words, everything going to plan, it might work. But the best laid plans of mice and men often go awry, as the saying goes.

It is clear that, judging by the details of this proposal, the government hasn’t designed this to help the agricultural sector. Instead, this idea is intended for two main reasons. To get the unemployed working again, however temporarily, and to reduce government spending on benefits.

While Mr Xenophon sees this as a proposal to kill two birds with one stone, the stone is being firmly aimed at the second bird.

Right now, a person receiving Newstart Allowance, for instance, stands to earn $13,026 a year in benefits. (This doesn’t include child or disability payments.) It’s a pittance in anyone’s eyes. But the opportunity to earn up to $5,000 in the space of eight weeks is still markedly in excess of what they could make through unemployment benefits.

If we multiplied the eight-week $5,000 figure across the rest of the year, it’d amount to $32,500. This is essentially the minimum wage in Australia.

Yet packing and harvesting jobs aren’t year-round disciplines. Riverland, for instance, requires workers on six-month stays.

At half a year, working for Riverland on a six-month contract would yield roughly $16,000 in earnings (using minimum wage rates). That’s slightly above the benefit payouts on a Newstart Allowance.

That would leave workers with three options:

  1. Work for eight weeks, make $5,000, quit, and continue earning benefits, which would amount to roughly $18,000 in total for the year; or
  2. Work for six months, make $16,000, qualify for benefits in the second half of the year, and hope they take in roughly $20,000–25,000 a year; or
  3. Leave the offer on the table, and remain on benefits.

The second option might look better than the others, but it comes with a few caveats.

One, the relocation costs, which could slash those earnings considerably. (And that’s not even considering the re-relocation costs if they move on afterwards.)

And two, the likelihood that people would relocate to remote areas for work that may prove extremely temporary, or that they’re overqualified for.

Mr Xenophon’s idea is noble in its aims, but would probably fall well short of its intended target. It’s a proposal designed to bridge the gap between labour shortages and government spending. But in practical terms, it leaves a lot to be desired.

Ultimately, however, these stop-gap measures will only delay the eventual automation of the entire Australian agricultural industry. When a harvesting machine can do the job of 20 people in a fraction of the time, you know what direction the wind is blowing.

It’s a surprise that there are still areas of the Australian agricultural industry that aren’t automated, but, in time, it won’t remain that way. For now, it appears that fruit pickers are still favoured over machines in some parts of the sector, but you wouldn’t bet on it lasting for another 15 years.

There will be plenty of bungled worker incentivisation schemes between now and then. If this one ever sees the light of day, it’s likely to join the scrap heap of ill-advised policymaking.

Mat Spasic,

Contributor, Markets and Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money