Jim Chalmers rejects RBA jobless goal of 4.5 per cent

Jim Chalmers has bowed to union pressure and distanced the Albanese government from the Reserve Bank’s ‘technical’ 4.5 per cent unemployment target.

Treasurer Jim Chalmers says the white paper ‘helps us better understand what full employment looks like in practice and the kinds of policies we need to enable more Australians to grab the opportunities on offer’. Picture: NCA NewsWire / Martin Ollman

Jim Chalmers has bowed to union pressure and distanced the Albanese government from the ­Reserve Bank’s “technical” 4.5 per cent unemployment target, with Labor’s upcoming jobs blueprint to endorse the goal of work for every Australian who wants it.

In the wake of savage criticism from workers’ representatives that the central bank is unnecessarily forcing unemployment higher, the first of five objectives in the long-awaited employment white paper, to be released on Monday, is to deliver “sustained and inclusive full employment”, and makes it clear the government has “broader and bolder aspirations for full employment” than those of the RBA.

RBA governor Michele Bullock was condemned by union bosses after she said in June “unemployment will have to rise” to 4.5 per cent in order to bring inflation back under control.

The white paper acknowledges the union complaints, saying “how we define, measure, and pursue full employment has significant consequences for our economy and people”.

In what could have implications for the RBA’s goal of curbing inflation, the white paper declares “everyone who wants a job should be able to find one without searching for too long”.

It says the government will aim to reform the labour market so unemployment can trend lower without driving inflation and interest rates higher.

“This is a broader and longer-term objective than achieving the current maximum sustainable level of employment consistent with low and stable inflation,” Labor’s flagship economic policy document says.

Despite unemployment at near 50-year lows, the white paper will argue there are millions of Australians who want to work more but who face barriers to gainful employment. Through better training and tweaking incentives to work, the government believes it can boost the available labour pool and maintain a lower unemployment rate over the longer term without adding to inflationary pressures.

Ms Bullock’s assertion – that the jobless rate, at about 3.5 per cent, was too low to be consistent with the 2-3 per cent inflation target – was described as “shameful” by unions, who lampooned the central bank as an “out-of-touch hotbed of neoliberal economics”.

The ACTU and Australian Workers Union have called on the central bank to target “zero involuntary unemployment”.

Union legend and former RBA board member Bill Kelty rubbished its claim the jobless rate needs to rise to meet inflation goals. But economists warn that pursuing the union-backed zero unemployment target would “blow up the economy” and return Australia to the damaging boom-and-bust ­cycles that plagued the 1970s and ’80s.

The RBA uses the non-accelerating inflation rate of unemployment, or NAIRU, as an estimate of the jobless rate where inflation is neither rising nor falling. While Ms Bullock in June said the RBA estimate of NAIRU was 4.5 per cent, she also said “more generally, full employment means that people who want a job can find one without having to search for too long”.

But the white paper warns the NAIRU is an incomplete measure of optimal levels of employment. Discussions of full employment have often “too narrowly centred around statistical estimates or assumptions of cyclical full employment – such as … the NAIRU”, it says.

“The NAIRU should not be confused with, nor constrain, longer-term policy objectives. The government has broader and bolder aspirations for full employment, aimed at increasing the maximum level of employment we can sustain over time, by reducing structural under-utilisation.

“Progress in addressing structural barriers will be reflected in lower statistical estimates of the NAIRU, and expand labour market opportunities and our economy’s potential over time.”

With the white paper making it clear “the full employment objectives of the RBA and the government are distinct but complementary”, Dr Chalmers said in Canberra on Friday the central banking concept of NAIRU was “very different from the government’s objective (and) the government’s aspiration”.

The growing divide between Labor’s full employment aspirations and the RBA’s more operational use of the NAIRU comes as Dr Chalmers and Ms Bullock negotiate a new set of ground rules for how the central bank pursues its inflation target, known at the Statement on the Conduct of Monetary Policy.

With the government working through the 51 recommendations from the sweeping Reserve Bank Review and preparing legislative amendments to the Reserve Bank Act, Dr Chalmers has delayed signing a new statement until later this year.