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Looking over the horizon for small business: COSBOA reflections on the Intergenerational Report 2021

Updated: Jul 8




The Treasury's Intergenerational Report provides Australians with long term economic projections, including trends in our population and the implications of these trends for our economy. While these are long term projections (out to 2060-61) the document is used to inform aspects of policy development in the near future.


The report has been prepared against the backdrop of the COVID-19 global pandemic and, unsurprisingly, this has had an impact on the Treasury projections.


Why is the Intergenerational report relevant to Australian small businesses?


In a soon-to-be-released paper on the impacts of small business closures on communities, we will point out the key roles that small businesses play:


· The small business sector is a vital contributor to the economy, including local economic development and national economic recovery.

· Small businesses are integral to communities, contributing to social cohesion and well-being in villages, towns, regional cities, and city suburbs around the country.

Future economic conditions and population trends will impact directly on the communities in which small businesses operate.


To the extent that the Intergenerational Report provides over-the-horizon glimpses of the Australian economy and population, small business operators may be able to prepare for long term changes in their markets and in their communities.


The report acknowledges likely changes in government policy settings in the future:

“The economic and fiscal projections highlight some of the long-term risks and opportunities Australia faces, assuming policies remain similar to current settings. However, government policies do not stand still…” (p. vii)


“Economic growth is projected to slow, largely reflecting slower population growth.” (p. viii)


The report addresses many issues but we will focus here on the economic impacts of changes in migration. The “demographic shock” caused by the COVID-19 pandemic will ultimately change the outlook for many small businesses.


“The most enduring effect is likely to be a smaller population reflecting a period of sharply limited migration and a temporary fall in the fertility rate.” (p. vii)


The Intergenerational Report raises many questions.


How will government respond to the precipitous drop in migration?


Many aspects of the migration program impact on small business; not only the number of migrants but the types of migrants, the locations where migrants settle, and the mix of migration pathways from temporary to permanent.


As the economy recovers from the pandemic recession, small businesses are struggling to recruit suitable workers. In some industries there are labour shortages in highly skilled, semi-skilled, and relatively unskilled occupations. With Australia’s international borders to remain closed for the foreseeable future, the migration program will not provide a solution to labour and skill shortages. But what decisions will government make about the migration program after the borders are re-opened? Will government decide to dramatically increase net migration to compensate for the effects of the COVID-19 period?


Will future Australian governments be committed to a big Australia?


“Australia’s population is projected to grow faster than most other developed countries and reach 38.8 million in 2060-61. However, for the first time in an intergenerational report, the population projection is being revised down.” (p. 13)


The concept of a ‘big Australia’ is not new. However, since Kevin Rudd spoke openly about the ambition for a big Australia in 2009, critics have argued that a population of 40 million is environmentally unsustainable.


The modern Australian economy has become heavily reliant on migration for economic growth. Is the continual growth of the economy the objective? If so, can this be achieved without pushing Australia towards a population of 40 million?


Will future governments adopt stronger regionalisation policies?


How will the opportunities and needs in Australia’s regional areas be factored into future policies when Australia’s migration system re-commences? Our history of urbanisation has led to the major coastal capitals facing huge sustainability and liveability challenges.


Many regional centres have great potential to contribute more to the Australian economy but to do so they need to grow their populations. COSBOA supports migration and economic development policies that specifically aim to catalyse regional opportunities.This necessitates a broad-based approach including strategies to attract workers to regional locations, to upskill them for occupations in demand and to address serious issues of housing availability and affordability.


How can Australia’s vocational education and training (VET) sector be reconfigured to meet future higher demands for skilled labour?


Over many years Australia’s labour market has been re-structuring as it has become increasingly reliant on skilled migration. The skills deficit caused by pandemic border closures will remain for a period after international borders are fully re-opened. There will be a recovery period which will present an important opportunity for local workers – including unemployed people –to acquire the skills needed by business.


The National Skills Commission argues that “the VET sector will be instrumental in supporting the recovery from COVID-19”. However, much work needs to be done to ensure that the VET sector is fully targeting the needs and requirements of small businesses in all parts of the economy.


Complicating this challenge is the evident inability of Australia’s public employment services system (currently called jobactive) to equip large numbers of jobseekers to compete for available jobs. Despite continued tinkering around the edges, Australia’s employment services system continues to be largely a one-size-fits-all response to complex local challenges. COSBOA argues for the implementation of place-based employment strategies that proactively engage local employers to address needs at a community level.


Final insights

The 2021 Intergenerational Report reflects some of the dramatic changes precipitated by the global pandemic, but it also examines and anticipates the long-term evolution of the Australian population and economy.


For small business the report raises critical questions about the size of Australia’s population and the nature of the workforce.


For small businesses, the report’s forecasts raise issues about the role migration will play in Australia’s future economic development, including the size of the domestic market. Future immigration policies will help to determine the size and capabilities of the small business workforce. This, in turn, will have a major impact on small businesses’ ability to be competitive, to thrive and to grow.


References

Treasurer of the Commonwealth of Australia, "Intergenerational Report 2021," Department of the Treasury 2021. Available online here.

National Skills Commission, "Education and training implications," Department of Education, Skills and Employment 2021. Available online here.

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