Real wages should rise - anything else means declining living standards

This week the election campaign has turned to discussion about the increase to the minimum wage, with suggestions that an increase either in line with the curent rate of inflation of 5.1% or marginally above it (such as the ACTU's proposal of a 5.5% increase) would bring about a return to 1970s style wage sprials.

Labour market policy director, Greg Jericho, in his column in Guardian Australia, however notes that wages should grow faster than inflation, and so long as real wages are not outpacing productivity growth then such rises are not exerting any inflationary pressure. He also shows that given the recent estimates for inflation by the Reserve Bank, a 5.1% increase would not be enough to prevent the minimum wage falling in real terms over the next financial year. 

The problem is not that wages have been fuelling inflation, but that for the past 20 years real wages have risen slower than productivity .

We need to change the debate from a reflex that assumes low wages is the ideal to realising that given workers are the economy they should be rewarded fairly for their efforts and improvements in productivity.

You cannot say the economy is healthy if real wages are falling, and most certainly not if the lowest paid in Australia are seeing their living standards decline. 

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Rate rises are going to cause a housing affordability crunch

For most of the past decade the talk about housing affordability has focussed on house prices. As fiscal policy director, Greg Jericho notes in his Guardian Australia column, falling interest rates since November 2010 have made paying off a mortgage less onerous than it otherwise would have given the soaring house prices.

But that is about to change. 

The signal that interest rates are going to rise by possibly 2.5% points over the next 18 months means that for new mortgage holders the cost of repaying a mortgage is going to be harder than ever before - harder even than when interest rates hit 17% in 1990.

It is a hit that will only exacerbate standard of living problems as wages will struggle to keep up with the rising cost of of holding a mortgage - especially given the belief that wage rises need to be contained below inflation rises continues in economic debate.

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High inflation means real wages have plummeted

The March CPI figures showing that inflation rose 5.1% over the past 12 months is not just the highest level since the introduction of the GST it also signals the biggest fall in real wages since then as well. 

Labour market policy director, Greg Jericho, notes in his column in Guardian Australia that even if wages have increased by 2.5% in the next release (up from 2.3% in the 12 months to December) real wages will have fallen 2.5% in the past 12 months.

That would mean real wages would be back at 2014 levels and barely above where they were when the LNP took office in September 2013.

Worse still for low-income earners, in the past 12 months the prices of non-discretionary items rose 6.6%. For those whose income goes more towards paying essential bills than does the average household, the pain of these price rises has been much higher. Their real wages have likely fallen by more than 3% in the past 12 months.

This is why any gloating about a recovery from the pandemic must be tempered to consider the reality of workers' lives. It is not enough to point to lower unemployment if real wages are falling faster than they ever have outside of the introduction of the GST - especially for lower income earners. 

That is not a recovery; that is a failure. 

With interest rate rises now very much on the way, without wage rises that account for inflation and properly reward for increases in productivity, workers standard of living is set to fall and see them back where they were nearly a decade ago

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We (still) need to talk about insecure work

Business groups and conservative media are happy to discuss insecure work as if it is nothing new - stable and part of a healthy economy that provides workers with independence. But this is not the case, with insecure forms of work - casual, gigs, temporary work and short-term contracts - taking up a growing share of jobs in Australia.

Taking this perspective to task in a piece for The New Daily, Jim Stanford and Mark Dean discuss how a much broader range of forms of insecure work face many workers in Australia today, with the issue not getting any better. This is not even a trend created by unavoidable conditions created by the pandemic; it has rather been a deliberate outcome of the federal government's labour market policies. Simply pretending it isn't an issue won't make it go away; nor will it provide us with sustainable solutions to the precarious situation that will keep facing more and more workers until the problem of insecure work is adequately addressed

This piece originally appeared in The New Daily here.


The election campaign needs to be more than a quiz show

The election campaign thus far has been dominated with gotcha questions that unfortunately have missed the vital need to examine the different policies on offer at a time when Australia's economy is in a state of extreme flux. 

Labour market and fiscal policy director, Greg Jericho writes in his Guardian Australia column that the recovery from the depths of the pandemic has overwhelmingly been on the backs of casual workers. It also has seen a large increase in the gap between people on JobSeeker and the number of unemployed. The rise of low paying, insecure work that has helped bolster the employment figures has also meant people who are working but still earning less than enough to keep out of poverty is remaining high.

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House prices means interest rates do not need to rise much to inflict great costs

The more than a decade long period of the Reserve Bank going without raising interest rates looks set to end. Rising inflation and the unwinding of the pandemic restrictions and border closures means that the emergency cash rate of 0.1% will soon go up. But at the moment the market expects before the end of next year that it will rise to above 3%.

But while that may have been a neutral rate in the past, the Centre's Fiscal and Labour Market Policy Director Greg Jericho, notes in his column in Guardian Australia, recent surges in house prices means such a rise would place an extreme burdon on mortgage payers - one not conducive to an economy still in recovery. 

It took nearly 6 years during the mining boom for the RBA to raise the cash rate by 300 basis points; currently the market anticipates the same rise occurring in 17 months.

That would massively limit economic growth for little purpose at a time when wage rises remains below inflation, and rather unlikely to occur given the Reserve Bank's recent hesitancy to slow the economy until real wage again start rising.

 

 

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A slap-dash budget revealing a government with no idea why it is in power

This year's budget was transparently targeted towards the May election.  

But as Fiscal and Labour Market Policy Director, Greg Jericho notes in his Guardian Australia column, the slap-dash and short-term nature of the measures reveals this government has lost any real reason for governing.

From the extra bonus of the low-middle income tax offset with no taper, which is now being used by businesses to argue against raising the minimum wage and the relative lack of concern about those in poverty while trying to exist on JobSeeker, this budget has all the hallmarks of an effort made up at the last minute and where poll numbers were more important than any economic figures

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A short-term budget with no vision or coherency

The 2022-23 budget is one of the most shameless election year budgets in memory. 

With the opportunity to use windfall gains in revenue to begin the fix of structural issues in the economy dealing with the low paid and essential services, the government instead has thrown money at voters in the hopes of re-election.

The Centre's Fiscal Director, Greg Jericho, goes through the budget numbers and finds that despite predictions of once again strong wage growth, the underlying assumptions are overly optimistic and would even still leave workers worse off than they were in the middle of 2019 until 2025.

The budget forecasts are for strong growth now, while the money is being pumped out, but once that ends we find yourself back with the same middling growth we had prior to the pandemic. 

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In next week's budget watch out for the tax cut that won't cut your tax

Next Tuesday, Treasurer Josh Frydenberg will deliver the 2022-23 budget. As it is only 2 months from the next federal election, the budget will be even more politically charged than usual.

And while there will be the usual attempts to suggest better wages growth is just around the corner and those on low-to-middle income earners are benefitting the most, we should watch out for the almost guaranteed spin around tax cuts. 

The Centre's Fiscal Policy director, Greg Jericho, notes in his Guardian Australia column that the low-to-middle income tax offset (LMITO) was meant to be discarded when the Stage 2 tax cuts were introduced. However because doing so would have delivered no net benefit to people earning below $90,000 the government extended the offset in the 2020 budget. 

It extended the offset again last year claiming it was providing tax relief to "10 million low-and-middle income earners" despite it actually doing nothing other than keeping the tax rate of those workers at the same level.

We can expect the same to occur next week. 

Budget spin is always a sight to behold, but we are now at the point where income earners are being told they are getting a tax cut that does not actually see them pay any less tax.

Meanwhile the Stage 3 tax cut that will deliver a cut of up to 4.5% for those earning $200,000 remains in place.

Spin and imaginary tax cuts for some; truly excessive tax cuts for others. 


Flat wages and booming house prices cause housing affordability to plunge

Since the stimulus measures introduced in 2020 to prop up the housing market during the pandemic, house prices have exploded. In 2021 property prices across Australia's capital cities rose an astonishing 24%. Combined with the stagnant wages growth of the past 8 years, housing affordability has fallen dramatically. 

A decade ago the medium-priced house in Sydney was equivalent to 5.8 times the annual income of a median household; now it is 10.8 times that income. 

Greg Jericho examines the issue in his column in Guardian Australia and drills down to look at the affordability of housing across the nation and finds a shocking, yet unsurprising tale - and one that deserves a much greater focus in the coming election campaign than is currently the case 

https://www.datawrapper.de/_/GmaeJ/

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