Youth Unemployment, Back Packer Tax and Overseas Students

by Jaymez

26 November, 2016

 

Officially just under 13% of Australian 15 -24 year olds are out of a job and available for work. This is about 350,000 unemployed youth. But effectively the numbers are really much higher, because many are in education and training because they have already failed to find a job.

This chart looks at the numbers of 15 -24 year olds in education pathways which they hope will lead to employment:

Participation of Australian youth aged 15-24 in education and training, by age and qualification, number and per cent, 2014. Sources: ABS 2014; AIHW analysis of ABS 2015.

More graduates will add to youth unemployed

The percentage of new Bachelor degree graduates unable to find full-time work four months after graduating is over 30%. (Source: Grattan Institute, Graduate Careers Australia, 2014.) So almost 200,000 of those studying a bachelor degree or higher will join the unemployed.

All of us will know at least one person who has gone back to study, or who is doing some other course in the hope that it will make them more employable.

The urge to add qualification after qualification is understandable, but it’s far from given that it will bring students closer to their dream career.

“There is a mistaken view that getting more qualifications will improve your employment prospects. I think many employers value experience over qualifications,” says Grattan Institute higher education program director Andrew Norton.

“Unpublished Graduate Careers Australia figures suggest people coming out of postgraduate degrees without previous full-time work experience have very similar employment prospects to bachelor degree graduates,” says Guthrie.

There are over 2,000,000 participating in doing ‘other’ lower tertiary studies. If they experience the same fate as those studying degrees, that would add a further 600,000 to the youth unemployed eventually.

That means potentially there will be 800,000 youths currently participating in education and training who will face unemployment of at least 4 months.

This is a huge problem which needs to be addressed!

Long term youth unemployment

Long-term unemployment presents a real menace to young people, possibly leading to years — if not a lifetime — of struggle to get a stable, well-paid job. In addition to the income forgone from not actually working, the longer a person stays unemployed the greater risk of losing important working skills. Moreover, long spells of unemployment send the wrong signals to potential employers, further undermining the prospects of landing a job.

Data on young job seekers experiencing long unemployment duration shows the situation has deteriorated considerably since the onset of the GFC, with more than 50,000 young Australians currently failing to find a job for more than 12 months.

The traditional definition of long-term unemployment refers to spells of 12 months or more. By this measure, the average proportion of young long-term unemployed has more than doubled in the last seven years, from 8.7% of the total pool of young job-seekers in 2008 to 18.2% in 2015.

One in three young Australians experiencing long-term unemployment could not find a job in the past two years, severely increasing the risk of lifetime welfare dependence.

For those young job-seekers not technically considered long-term unemployed but still experiencing long spells of unemployment duration, between six months and a year, the same dangerous patterns arise: from 11.5% in 2008 to 16.3% in 2015 — and again, the highest levels since the beginning of the respective ABS time-series.

Hence, the overall percentage of young job-seekers on long duration of unemployment increased from 20.3% in 2008 to 34.4% in 2015.

That is, roughly one in three young job-seekers have at least a six-month duration of unemployment.

Such worrying statistics should urgently foster a mature debate on the main impediments of youth job creation.

• Minimum pay floors  disproportionally price long-term job-seekers out of the market.
• The proliferation of working backpackers and overseas students has crowded-out many school leavers and low experienced graduating youth from entry level jobs.

Back-packers

There are about 600,000 backpackers visiting Australia each year, with about 249,000 of them having a working holiday visa.

In 2015, 645,185 international students were enrolled in education programs in Australia. Of these, there were 272,095 international students enrolled in the higher education sector.

So there are at least 249,000 backpackers who are officially competing for entry level jobs who can work whatever hours they can get. There are another 350,000 backpackers who may be doing work for under-the-counter cash.

International students

There are 645,185 students who can legally work up to 20 hours per week. Only 272,095 are actually enrolled in Universities and TAFE courses. The rest, over 370,000 are doing sometimes ‘mickey-mouse’ courses provided by many fly-by-night companies, which care more about getting the student fees, rather than whether the student turns up, or submits anything on line.

Many of those students are often working well beyond their legally allowable 20 hours per week.

I have met many of them who have openly admitted their situation. Following the Gillard Government’s legislative changes, after completing their ‘course of study’ they are allowed to work full time for two years and then apply for permanent residency.

I have had cab drivers who were ‘international students’ who told me they are working 50 – 60 hours per week. There are ‘international students’ who always seem to be serving at the cafes and restaurants I attend.

Competition for entry-level jobs is too fierce for many Australian youths

Over 1.2 million back-packers and international students compete with our youth for entry level jobs. They are much more prepared to work in remote areas or take difficult shifts than our pampered youth, who can get easy welfare payments.

We should tax back-packers and international students

Back-packers and international students enjoy the benefits of our transport and tourism infrastructure, paid for through taxes. They also have a right to emergency medical treatment, and are often involved in expensive accident rescues and evacuations. Back-packers also enjoy the protection of the tax payer funded security forces.

Back-packers and international students also take the cheaper accommodation options in inner-city and close-to-the-city, causing a housing crisis for permanent Australians residents in those areas.

It is only fair that these people contribute to our tax system.

Some people may claim that they do contribute to our economy because they bring money to Australia and they pay for courses they are doing. That may be partially true, though many will earn more money in Australia than they brought with them. That earned money could have been earned by one of our unemployed youth, thus saving the tax payer the welfare payments.

The extra costs the back-packers and international students place on our services and infrastructure are nowhere near compensated by the money and fees they bring to the country. Universities, for instance, only charge fees which cover their teaching costs. They are not recovering from the international students any part of the capital costs of the university buildings and infrastructure — which has been paid for largely by Australian tax payers.

There is an argument that they pay tax already: normal Australian resident tax rates apply to them. But since the Gillard Government dramatically increased the tax free threshold to compensate for the introduction of the carbon tax, it has meant we have collected little or no tax from back packers and many international students.

Our tax free threshold of $18,200 is too high. With the next tax rate for income between 18,201 and 37,000 being 19%, back-packers working just a few months, or students working just 20 hours in entry level jobs, pay little or no tax. And of course pay no tax on any cash-in-hand.

This is why Australia should not only introduce a backpacker tax, but also an international student tax. Personally I would start it at 15% from the first dollar earned, and then when they have earned over $18,200 they go on to the normal marginal tax rates.

If this lost Australia back-packers or international students, who cares? I don’t believe they are making a net financial contribution to the country anyway. Most importantly, it would also free up entry level jobs for local youth.

I also believe the ATO should crack down on the endemic practice of international students working more than 20 hours per week by getting paid cash, and back-packers without work visas working for cash. They should run a promotion asking workers who are aware this is happening at specific establishments to dob in those employers. The ATO can then audit the employer rosters and financial records to establish the guilt, lay charges, and dispense fines.

Changes to youth welfare payments and pay rates

Taxing back-packers and cracking down on illegal workers will not entirely solve the youth unemployment problem. You still have to encourage youth to go to the regional areas, which currently rely on back-packers and international students to do seasonal work. We need to have youth consider the fact that they may not have one permanent job initially, but multiple seasonal or part-time jobs. And of course they may not have the job they desire, but they have to work.

Once a youth has been unemployed for three months or more then then must be required to move to do jobs which they are qualified and physically able to do.

If they refuse, then their welfare should be cut. Before they became unemployed youth, presumably they were being supported by their family, and their family can take that responsibility back if the youth is not prepared to take a less than desirable or convenient job.

We also need to look at the pay rates employers are being asked to pay for inexperienced staff. Sunday pay rates starting from $33 an hour for a casual entry-level job in a fast-food restaurant might explain why it is so hard for long-term dole recipients to be given a fair chance to enter the workforce. Such high pay rates act as a strong disincentive for employers to create job positions for low-skilled, long-term unemployed youth.

A discounted pay rate should be set for employers to take on youth who have been unemployed for four months or more. However the employer can only pay that discounted pay rate to that employee for a maximum of six months, after which time they must pay the standard rates.

Finally, Australia needs to look very closely at what benefit, if any, we are getting from attracting overseas students.

We know that if we wanted to, we can attract overseas migrants who already have tertiary degrees and work experience and who speak English. So why do we need to attract students at all? Of course the Tertiary Institutions and course providers would scream blue murder if the Government suggested a limit on student visas, but I believe Australia needs to do so.

I also believe that Australia should limit the courses we allow to be called ‘approved courses of study’, because it is clearly being rorted. An easy way to reduce the number of dodgy courses, and the number of overseas students, while ensuring that the overseas students who come here are adding money to our system, is to not allow overseas students to work at all.

There would be a lot of screaming about these changes from those who are getting rich out of our current system, and those who were effectively gaining work visas and a guaranteed pathway to citizenship.

But so what?

We would be freeing up hundreds of thousands of entry level jobs for our youth and dramatically decreasing the youth unemployed. At the same time we would reduce the demands on infrastructure and services, largely in our inner-city areas.