When even Australia’s most conservative policy institution agrees we have a wages problem…
Dr Richard Denniss, Chief Economist for The Australia Institute, joins Life Matters as the election spotlight turns to flat wages growth and what we can do about it
Australians are some of the richest people in the world, living at the richest point in world history — but we feel poorer than ever, even after 28 years of economic growth.
Partly it’s because we’ve had 5 years of wage stagnation in Australia. Penalty rates have been cut for some sectors. It’s no wonder so many Australian workers (especially young workers) are fed up.
The wages crisis is no accident, Richard Denniss told Life Matters.
“Let’s be clear, we’ve spent 20 years in Australia trying to lower the rate of wages growth. That’s what industrial relations reform has been targeted at for the last 20–30 years.
“When the Coalition was elected in 2013, the then Employment Minister Eric Abetz said there was a wages explosion and he was going to stop it.
“Well he succeeded. Credit where credit’s due. We’ve now got the lowest rate of wage growth on record in Australia” — Richard Denniss
“So we’ve been worried about rapid wage growth in Australia for decades. For decades we’ve been told rapid wage growth would cause inflation, rapid wage growth would make us uncompetitive, rapid wage growth would cause unemployment.
“Well, we don’t have rapid wage growth anymore, we’ve fixed it. What we’re not quite sure now, exactly which bit ‘fixed it’ and exactly what if anything we should do about.
Everyone thinks wages should grow, we just can’t quite agree how to make them grow.
“The Reserve Bank of Australia is probably the most conservative policy institution in Australia…and the RBA says wage growth is too low and we need to do something about it” — Richard Denniss
“Australia has a very well established age-setting regime. Our award system, our minimum wage, these things are set by the Fair Work Commission. And both major parties are suggesting that should continue.
“Where’s there’s a big difference, is Labor has said, as in incoming government, they would instruct the Commission to gradually increase the minimum wage to what they are calling a living wage. The definition of the living wage would still be determined by the Commission and the rate at which that growth occurred and was phased in would be determined by the Commission.
“Effectively the difference in policy now between the government and opposition is that Labor is saying the current system isn’t working and they would give new guidance to the regulator. Whereas to the extent the Coalition has a formal wages policy, that policy is to suggest things are going pretty well at the moment and wage growth is around the corner. Every Budget since they came to office they’ve forecast that wages would start to grow soon. We saw that in last month’s budget.
“There’s no doubt both parties want wages to pick up. It’s just that Labor thinks there need to be new instructions to the umpire, while the Coalition seems to think, if not for the last five years, next year they will start to pick up.
Richard Denniss says everyone’s going to disagree on what ‘a living wage’ might constitute or how much it should be.
“ What fascinates me is that the government says that to retire with dignity I need around $50,000 a year tax free if I own my own home and my kids have left home.
“So politicians, especially conservative politicians, are very worried about the trials and tribulations of living in retirement on $50,000 a year, tax-free in your own home, after your kids have left home.
“But when people who are earning less than $40,000 — trying to get the kids off to school, trying to pay the rent — say that perhaps they don’t have enough income, we’re calling them greedy” — Richard Denniss
“We had the Prime Minister recently say that if we give all these people wage rises then that’s going cause unemployment. So to say to the lowest income people, living on less than $40,000 a year after they’ve worked full time all week, that that’s enough for them to live on — a lot of people, myself included, think that’s unreasonable.
“If we don’t want to increase wages, we’re going to have to have a far more generous welfare sector, we’re going to have to do something to help them.
“Look no one in capitalism gets any guarantees about anything. But one thing I know for certain is that unless people’s income grows they’re not going to go into shops and buy anything. So it’s easy to see wages as a cost to business, and they are, but wages are also the main form of income in our society. So when we talk about keeping wages down, what we’re actually doing is keeping people’s incomes down. So if people’s incomes are flat energy bills are rising, and rents are rising then guess what? They spend less money in book stores, less money in cafes and less money on shoes and clothes.
“What we do know is the most conservative institution in Australia, the Reserve Bank of Australia, is out there saying wage growth needs to pick up. What we know is the government in its own budget is forecasting that wages will pick up and employment will rise.
“Why would the government be forecasting employment growth and wage growth at the same time if the people at Treasury believe that wage growth is bad for job creation?” — Richard Denniss