What does it take to get wages growing in Australia?
According to Josh Frydenberg, who will go down in history as the biggest spending peacetime treasurer and the man who dramatically expanded the size of government in Australia, it will take half a decade of government spending above 26% of GDP, $340 billion of deficits, three years of unemployment in the low 4% range and massive business investment. That will eventually deliver wages growth of… 3.25% in 2025. That’s still well below the average level of the Labor years — including during the financial crisis.
That forecast is higher than in the May budget, which had wages reaching a measly 2.75% in 2025. But inflation has been upgraded in the forecasts as well. Real wages growth will be just 0.75% for workers in 2025.
For context, workers’ wages went backwards by over 2% in 2020-21 and will fall by another 0.5% this year. It could be the late 2020s before workers reach the level of real wages they had prior to the pandemic.
A key reason why wages growth is so abysmal despite the kind of strong employment growth revealed yesterday in the November jobs figures is also to be found in MYEFO. The government has significantly lowered its forecast of net overseas migration to a loss of only 41,000 this year, and is planning for 180,000 migrants next financial year — or nearly double the 96,000 it forecast back in the May budget. Net migration will surge in the years following — to 213,000 in 2023-24 and 235,000 in 2024-25.
That’s the Coalition-business wage suppression plan in action — make sure there is a ready supply of temporary labour from overseas to prevent wages growth, even in the face of strong demand for labour generated by massive government spending.
Australian workers will pay the price of a decade of lower real wages.
But even with upgrades to inflation forecasts, CPI will only be in the middle of the Reserve Bank’s target band through to 2025. Inflation is the hot topic of conversation in economic circles following the Bank of England’s rate rise yesterday and the US Federal Reserve’s dramatic change to its monetary policy earlier this week in the face of the highest inflation in the United States for decades — driven by labour shortages, supply chain problems and high demand.
At the end of its final meeting for 2021, Fed officials this week indicated they expected to raise interest rates at least three times in 2022 and further rises in the following two years. They also slashed its bond-buying purchases by twice as much as they had announced at the last meeting in early November, a pace that would put them on track to end the program altogether in March. They now expect inflation to run at 2.6% next year, materially higher than previous forecasts, and the unemployment rate would fall to 3.5% — near if not exceeding full employment. The current US jobless rate was 4.2% in November.
Some local commentators continue to believe the US Fed’s moves will dictate monetary policy here. And financial markets in Australia have priced in the RBA taking the cash rate, currently 0.1%, to at least 0.75% by the end of next year.
Reserve Bank governor Philip Lowe continue to tell them they’re wrong. He must be sick of saying it over and over again, but he was repeating it yesterday in a speech in Wagga (where he grew up and worked at his dad’s servo). He believes the bank will not be increasing interest rates in 2022.
“The Reserve Bank board will not increase the cash rate until actual inflation is sustainably in the 2-3% target range. We are still a fair way from that point. In our central scenario, the condition for an increase in the cash rate will not be met next year.”
Lowe again ticked the boxes for everything he’s been saying in recent months about the what will drive the RBA to lift rates: wages. Wages growth is still stuck in the twos — check. Public sector wages policies are hampering growth — check. Wages growth is only back to the levels it was at before the pandemic — check. Wages growth will only pick up “gradually” — check.
The government and employers remain hell-bent on suppressing wages. Markets expecting a rate rise should be prepared to be patient — another word Lowe has used over and over again lately.
Matthias Cormann said it out loud in an interview, that suppression of wages was an in-built feature of their economic strategy.
The bottom line though is the growing wealth of an increasingly small elite. The gains of an expanding economy are not shared, the majority of people are stuck in a holding pattern – earning just enough to buy the cheap fruit that can only stay cheap so long as underpaid foreign workers pick it for us.
So we’re given the ultimatum, if you want to be able to afford cheap-ish food, don’t you be rocking the boat – and in the meantime, just let the ultra wealthy do their thing.
Yes. Apparently the post WWII decades of union driven high wages, driving a massive increase in the size of the middle class, and continuing strong economic growth didn’t happen. What happened was MBAs seeking short term profits to maximise shareholder returns through cost externalisation. Foreign workers repatriate their incomes. Every Friday afternoon at the local PO. Anyway, we have to build bigger regional ports so the ultra-wealthy can dock their yachts. Gina said so.
The growth is – and was planned to be – in returns to shareholders. The Thatcher Plan – if everyone is a shareholder, then they will be inherently more conservative. And consultants – the top end of town – will be fully onboard to reassure and enable the plundering of state assets. Based on all those now discredited neo-liberals slogans as ‘improved efficiency’ and ‘wealth trickle-down’.
Like post Soviet Russia, the assets have been plundered and divvied up among the ‘elite’ , and the wage earners have nothing – and have been convinced to self-destruct their collective power.
With zero interest rates and globalisation driving down costs , we’re living the neo-liberal dream. In which only the few benefit. Which generates mass FOMO scramble for ‘my entitlement’ – so to hell with society.
At the risk of really stirring up a storm is Marx that far off the true nature of the type of attack launched by the coalition and big business on wages.
For wages to stay at the subsistence level, Karl Marx held that workers must be in a weak bargaining position in relation to their employers. A worker’s source of bargaining power is his or her ability to leave the employer and to go get a new job with someone else. To Marx, under capitalism, the weak bargaining position of the workers would be maintained by a large supply of unemployed workers. Workers would have to “obey” their employers because they would know that there were many other workers willing to take their jobs. And they could not quit their jobs because their chances of getting other jobs would be low. This supply of unemployed workers was called “the reserve army of the unemployed”. (Cultural Reader 26th November 2017)
I contend that with only minor adjustments this sums up the Morrison government’s attitude to its supposed efforts to raise workers wages.
Frydenberg and Morrison will no doubt be using the mythical catch phrases during this Election Campaign:
“You always pay more Tax under a Labor Government”, and “the Coalition are the better money managers”
It is absolutely unbelievable that a lot of the Electorate actually still believe these two phrases, as both are inherently Untrue, and the numbers to prove it are easily found.
The Coalition Government, despite their claims of “Back in Black”, never actually achieved it.
In fact the underlying Debt that was left behind by, “Labor’s Debt and Deficit Disaster”, (another untrue Coalition Myth), was almost doubled before the Pandemic hit, and now it has almost trebled, and they are very happy to hide behind the Pandemic to cover their mismanagement of the Economy, and every Budget that they bring out is full of unrealistic projections.
As is with most issues that this Coalition Government faces, they just kick the can down the road.
Most people, unlike Crikey readers, take very little interest in politics. A few catch phrases is all they notice, so whoever has the ability to get the catch phrases out will be believed.
“ Australian workers will pay the price of a decade of lower real wages.”
You mean a second decade of falling real wages, don’t you?