The PBO reveals just how much the Stage 3 tax cuts favour the wealthy

The Stage 3 tax cuts, which will essentially create a flat income tax system, have always been clearly biased towards high-income earners. For those earning over $200,000, the tax cuts represent a 4.5% cut compared to just 0.6% for someone on the median income of $60,000. But this week, the Parliamentary Budget Office has released costings that detail just how skewed the allocation of money is to the richest in our society. 

As labour market and fiscal policy director, Greg Jericho notes in his Guardian Australia column, the PBO estimates that of the $243.5bn that the tax cuts will cost in their first 9 years, 48% will go to people earning over $180,000, and 77% will go to the richest 25%.

In the first year of operation, the richest 1% of income earners will get the same benefit from the tax cuts as will the poorest 65%. 

Greg Jericho notes that in 2024-25, $12.7bn of the $17.7bn annual cost of the tax cuts that year will go to those earning above $120,000. That is almost the same amount expected to be spent on Jobseeker payments that year. 

The Stage 3 cuts are designed to favour the wealthy and reduce the level of revenue which in turn will force cuts to spending and programs that assist the most vulnerable. 

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Market power costs consumers, workers and the whole economy

For most of the past 40 years whenever the discussion turns to the need to lift productivity, invariably the conversation is dominated by business groups and various media commentators who suggest the solution is more labour market flexibility. Just a bit more flexibility and productivity will improve!

But a speech by the assistant minister for competition, Andrew Leigh, reveals that businesses themselves and the way in which the major players are are allowed to dominate industries is a significant drag on productivity growth.

In his Guardian Australia column, labour market and fiscal policy director Greg Jericho, reviews Dr Leigh's speech and notes that over the past 20 years market concentration has increased across the whole economy. Over this time there has been a fall in the percent of new firms entering industries and also in established firms leaving. This produces a more sluggish economy where the need to innovate and pursue more productive operations is diminished. It also leads to firms being able to markup their prices by more each year as they consolidate their power, and also feel less need to offer better wages as the competition for labour falls. 

While wages growth crucially requires fair bargaining arrangements that enables workers to negotiate better wages, when workers have fewer options to pursue better paying jobs at other more productive workplaces, the number of workers switching jobs declines and so too does the market pressure to pay wages.  

Dr Leigh notes that this “decline in economic dynamism” needs greater policy focus, and his speech is an excellent corrective to the belief that improved productivity is all about taking away worker rights and giving more power to businesses to hire and fire.

Australian business groups and many on the conservative side of politics love to talk up free-market competition, but the past 20 years has shown the markets are less about competition and more about concentration. And while profits have risen, workers and households have been left worse off. 

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The biggest real wages fall on record

The latest wages price index figures from the Bureau of Statistics reveal just how far workers ability to purchase items with what they earn has fallen. 

In his column in Guardian Australia, Labour Market and Fiscal Policy Director, Greg Jericho, notes that while nominal wage grew 2.6% in the past year, real wages fell 3.3%. That fall has taken workers' purchasing power back to 2012 levels. 

This lack of strong wages growth despite unemployment being at nearly 50 year lows highlights just how skewed the bargaining system is against employees. In the past, unemployment this low would have been delivering wages well above 4%.

The weak public-sector wages growth also reveals the impact of public-sector wage caps. For 6 consecutive quarters the annual growth of public-sector wages has been below that of the private sector. No longer does the public sector guide and support private-sector wages. This is the result of instituting arrangements which prevent a natural bargaining process to occur and in a time of rising inflation produce a massive fall in real wages for public-sector workers.

In the past year wages in the education system, for example, rose just 2.3% on average, meaning teachers real wages fell 3.7% in the past year.

While the real wages fall is terrible, it is likely worse for many families.

The Bureau of Statistics estimates that households on average spend around 60% of their weekly expenses on essential/non-dictionary items. But because the prices of those items rose by 7.6% over the past year compared to average inflation of 6.1%, any households that need to spend a greater share of their income on essential items would have seen their real wages fall even further. For a family that spends 80% of their weekly budget on essential items, real wages fell by 4% - a truly horrific experience. 

The wages data confirm that there is no wages breakout that is driving inflation, instead workers are being left behind while companies produce record profits. 

The Jobs and Skills Summit in September must address this imbalance.


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The latest taxation statistics reveal the massive gender pay gap across the whole economy

The 2019-20 taxation statistics released this week by the ATO provide a plethora of data that reveals with precision the salaries of people by location, occupation age and importantly, gender. 

Labour market and fiscal policy director, Greg Jericho, undertook a deep dive into the data. He notes in his column in Guardian Australia that in 91% of over 1,000 separate occupation groups from Nightclub DJ through to Magistrates and Judges, men have a higher median income than do women. 

The data reveals that women are less likely to work in higher paying occupations, and perhaps more damning those occupations with high levels of female participation are more likely to be low paid than are jobs which are mostly done by men.

It is clear that work traditionally done by women is much lower paid than stereotypically traditional male jobs. 

But it is not just those occupations where the imbalance occurs. Even in jobs where women are the majority of workers, men will likely have a higher median salary and be more likely to be paid over $90,000 a year and be within the top two tax brackets. 

Women for example make up 57% of a journalists, and yet account for just 46% of all journalists earnings between $90,000 and $180,000 and a mere 36% of those earning above $180,000.

The data highlights that the gender pay gap is not just about being paid the same hourly rate for the same work, but who gets the opportunity to work more hours, and who is more likely to be given roles that pay higher wages.

It reveals a deep structural issue within our economy in which even in jobs largely done by women, the men in those occupations will most likely be paid more. 


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Interest Rate Hikes Will Hurt Workers to Protect Profits

The Reserve Bank of Australia has hiked its interest rate 4 times so far this year, for a combined total of 1.75 percentage points. And it has signaled more increases are ahead, as it joins other central banks around the world in rapidly increasing rates to slow spending power, job-creation, and hence inflation.

In this commentary, Centre for Future Work Associate Dr Anis Chowdhury challenges the wisdom of this strategy. Since current inflation is related more to supply chain disruptions and other global pressures, higher interest rates will do more harm than good -- and shift national income even further toward the owners of capital, instead of working Australians.

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The Job Summit needs to produce a fairer labour market

Despite unemployment at nearly 50 years lows, it will be little suprise to workers that wages growth is only at 3 year highs. Over the past decade the relationship between wages growth and unemployment has shifted such that levels of unemployment that would have once seen wages growing at more than 4% are now associated with growth of well below 3%.

This has not happened by accident or some "invisible hand" of the free market. Decades of industrial relations legislation has purposefully reduced the ability for workers to organise and bargain for better wages. 

Labour market policy director, Greg Jericho writes in Guardian Australia that we are now also seeing for the first time a shift in the relationship between wages and underutilisation.

These changes have meant that employees are recieving ever smaller slices of the national income pie.

The past 24 years have also displayed that theory of increasing productivity resulting in better wages, works better in the economic textbook than reality. In just 7 of those 24 years, have real wages outgrown productivity - and 4 of those year were because of highly unusal cases of productivity actually declining. 

The Job Summit in September needs to be a time for a reset - a time to acknowledge that the labour market is not fairly weighted and that workers are not getting their fair share. 

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Will "curing" inflation cause a recession?

Right now, the big numbers of the economy look pretty good. Unemployment in June was just 3.5% - the lowest since 1974. So why has consumer confidence crashed and why are so many Australians worried about a recession? 

Labour market and fiscal policy director, Greg Jericho writes in Guardian Australia that the rising level of inflation, which combined with low wages growth has led to massive falls in real wages, has many Australians wondering if increasing interest rates is going bring the economy to a halt.

He writes that for now a recession is unlikely, but the risks remain. Previous periods of sharply increasing rates have been followed by rising unemployment, and the current market expectations for the cash rate rising above 3.5% within a year would certainly create a massive brake on the economy. 

The story from overseas is also worrying, with the United States battling even higher inflation than Australia and suggestions that the market is already pricing in a recession. 

It all highlights that while today's labour force figures are on the surface very promising, they also show just how affected the economy continues to be by the pandemic. Nearly 300,000 employed in June worked zero hours because of sickness or injury - well over double the usual amount. 

The nearly 50-year low unemplyment rates are also failing to lead to wages growth anywhere near what would have been expected in previous years, let alone at a level that is keeping up with inflation. 

While inflationary pressure do remain, the risk that the Reserve Bank will raise rates too high and too fast remains very much in place - especially given the lack of wages growth. 

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Employer Arguments Against Minimum Wage Boost Don't Hold Water

The Fair Work Commission has announced an important increase in the national minimum wage, which will rise by $1.05 per hour (or 5.2%) effective 1 July 2022. This represents a significant shift in the debate over wages in Australia, whichi have been languishing for years -- and are now falling in real terms.

Even with this new increase, however, real wages for the lowest-paid Australian workers are likely to go backwards this year, with inflation pegged to accelerate to as much as 7%. Nevertheless, Australia's business lobby are repeating tired old complaints about minimum wages being too high, stoking further inflation, and undermining profits.

In his latest commentary, published in The Guardian, Policy Director Greg Jericho reviews and debunks these predictable complaints. The evidence is clear that wages are not causing inflation. Profit margins have grown along with prices. Workers deserve to have their real incomes protected, as the true sources of the problem (arising mostly from after-effects of the pandemic and the global energy price shock) are addressed.

Please see Greg's full column, "Workers and their wages are the collateral damage of the war on inflation."

The recovery needs to deliver for workers

The latest labour account survey released by the Bureau of Statistics revealed that while job growth remains solid and the job vacancy rate is at record levels, workers real incomes remains at best flat. 

As we now enter a phase where the Reserve Bank is raising interest rates in an effort to reduce demand in the economy and keep down inflation and prices and wages, labour market policy director, Greg Jericho, notes in his Guardian Australia column that workers risk seeing their real wages continue to fall.

It is clear that the major pressures for inflation have come not from labour costs but from the input costs of goods and material. While these costs have been passed on to consumers, there has been much less flow through to workers. 

While the Reserve Bank notes that there are some signs of rising wages, these will inevitably be reduced due to the impacts of rising interest rates. 

After a year in which real wages have plummeted, the recovery is very much looking like one where company profits have risen, but where workers will miss out on wage growth that would undo the damage of the past year. 

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Enterprise Bargaining System no Longer Fit for Purpose

The collapse in agreement coverage under Australia's enterprise bargaining system in Australia in recent years, particularly in the private sector, has focused attention on the need for reforms that will give more workers the effective ability to collectively negotiate better wages and conditions. In the private sector, coverage by a current enterprise agreement has fallen by half since 2013: to below 11% of all workers by March 2021. No wonder wages are lagging so far behind inflation.

The new Commonwealth government has pledged to find ways to strengthen collective bargaining. In this feature interview with the ABC's national economics program The Business, Senior Economist Alison Pennington discusses the reasons why the current system is not working, and some of the reforms that will be required to support bargaining and lift wages.

Alison Pennington on ABC


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