In Kevin Rudd’s ”me too” scramble to replicate every conservative economic thing that John Howard is, there’s one glaring difference — the threat of wage-induced inflation.

Even though Rudd would not wish wage-induced inflation onto the Australian community his undertaking to destroy WorkChoices ”lock stock and barrel” would most likely ignite that inflationary flame.

Even though WorkChoices is ridiculously complicated legislation it is an integrated package that has broken the link between wage pressures and inflation.

It’s taken the politics out of minimum wage setting and reduced it to an entirely economic analysis. It’s a reform similar to removing politics from the Reserve Bank decision processes on interest rates.

Pattern bargaining has been broken. The wages explosion occurring in the mining sector is being contained to that sector. Wages escalation is not being artificially transferred to other sectors by legal decree based on ”wage equity” arguments, or union muscle.

The key to containing wage-induced inflation is that wage increases must sit within the capacity of each and every individual business’s capacity to pay. Where this occurs, wage increases can happen without threatening inflation. Having genuine individual employment contracts available is vital to this.

The evidence is that wages are increasing across the board. In the last 12 month period WA wages increased 6.8%, Queensland 5.1% and the other states averaged around 4.5%. This is well above the inflation rate of around 2.5%.

Hold this line and there should be more success to come. The Howard reforms have stymied the union game of locking up specific sectors and businesses to union only rules. Now all approaches to work are legally open to competition from alternate employment, contracting and management approaches.

The history of work reform internationally is that when legislation is changed it takes management about 2-3 years to properly shift their thinking and behaviours and chase new levels of productivity in firms. This is still to happen.

On this issue Rudd’s economic credentials sit within his industrial relations policies.

At the heart of the ALP, IR policy is commitment to big picture, coordinated management of wages equity. “Wages equity” is a jealously philosophy that says one Australian should not earn more than another and that income differences must be determined through political control. It’s policy designed to push politics back to the heart of wage determination at the macro and micro level.

Ken Phillips is director of the work reform unit of the Institute of Public Affairs

Peter Fray

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