If Kevin Rudd and Wayne Swan are looking for some last-minute nation building initiatives to add the vision thing to the Budget, they could do worse than invest in some Economics for Dummies courses for trade union leaders.

The Coalition tried hard to suggest last year that union leaders would be too tough for Kevin Rudd to handle. Judging by the comments of Victorian Trades Hall Council secretary Brian Boyd to The Australian today, the problem is not their toughness but their stupidity.

The gist of Boyd’s comments is that workers need wage rises of higher than CPI to “get ahead” of inflation, and to make up for constrained wages under the previous Government.

“Just because Howard got elected for a decade doesn’t mean we accept that these harsh IR laws were justified in restricting our ability to find a fair price for labour. So I have no qualms in saying if we want to play the catch-up game for wages and conditions, we’ll do it.”

Hell, why don’t we just print some more money and hand it out? Boyd is trying to distinguish between a wages catch-up and a break-out. Short of the discovery of a magic pudding in every business, there’s no distinction. “Catch-up” is the first stage of the wage-price spiral that the RBA warned on Tuesday would lead to higher interest rates.

Boyd’s timing, at the moment when the Coalition, aided and abetted by The Australian, is trying to argue that the Government’s rollback of WorkChoices will be inflationary, couldn’t have been worse.

Particularly problematic in all this is the ongoing rise in the price of oil, which reached new highs overnight. Glenn Dyer discussed speculation about where the oil price is heading yesterday, but it seems as much a function of market sentiment as long-term factors like the remorseless growth of India and China. Even when it is revealed that crude inventories have actually increased, the price still goes up.

And ever noticed in media coverage that there’s never a reason for the price of oil not to increase? It’s like there’s never a summer that isn’t ideal for bushfires. It’s either winter in the northern hemisphere and there’s strong demand for heating oil, or it’s summer and “peak driving season” (whatever that is) in the United States.

So, unless the Australian dollar gets a rocket under it, petrol prices seem likely to keep rising. And that means, in Brian Boyd’s logic, wage rises. “Ordinary working people didn’t cause the inflation situation,” he declared. “Other factors caused that. The oil price internationally is one of them, and grocery prices going up has nothing to do with what workers do. They’re entitled to get compensation for that.”

Wrong. Ordinary working people have plenty to do with inflation. They’re the demand side of it. Theirs are the too many dollars chasing too few goods. It’s like traffic congestion – it’s everyone’s fault.

Moreover, it’s not going to help reduce our dependence on carbon-based fuels if we “compensate” everyone for higher petrol prices. Higher prices – not just $1.50 a litre, but $2 a litre and more – are the only thing that is going to drive a genuine switch to less carbon-intensive transportation systems.

However, in a tight labour market, and in the absence of any centralised mechanisms for regulating wage growth (how very ‘80s), the Government’s capacity to intervene is limited to jawboning. Rudd and his Ministers should be on the phone to every union mate in the country – and every State Premier contemplating major pay rises for public servants – explaining the consequences, economically and politically, of a wages breakout, and arguing that the Government’s tax cuts mitigate the need for a “catch-up” wage push at this point.

If they don’t, ownership of inflation will pass lock, stock and West Texas crude barrel from the Coalition to the Government.

They also need to start being honest with Australians about higher petrol prices. Stunts like Fuelwatch and a Petrol Commissioner perpetuate the sense that there’s something unnatural about paying a lot for the privilege of driving a car.

The Government should be blunt in saying that not merely are higher prices here to stay, but that, to the extent that they help us switch to lower emission forms of transport, they’re not necessarily a bad thing. After all, it’s supposed to be bringing in a carbon trading scheme in eighteen months’ time. That’s not exactly going to lower the cost of filling up, is it?

Full disclosure: Bernard Keane is one of those hypocritical wankers who lives in the suburbs but drives a gas-guzzling 4WD.

Peter Fray

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