Congratulations to federal Treasury (and Treasurer Scott Morrison): you’ve extended your run of getting wage forecasts wrong to an amazing six years straight. The June quarter Wage Price Index yesterday showed both trend and seasonally adjusted wages growth in 2017-18 of 2.1%. The 2017 budget predicted 2.5%, MYEFO downgraded that to 2.25%, and that still proved too optimistic (see update below). What was that line about doing something over and over and expecting the result to be different?
The trend quarterly result for the June quarter was just 0.5%; in seasonally adjusted terms, 0.6% — the same numbers we’ve been seeing every quarter for years now. Private sector workers had annual growth of 2% compared to 2.4% in the public sector, meaning private sector workers went backwards in real terms through the year given CPI growth of 2.1%. Public sector wages in Victoria were the only wages to grow faster than 3% anywhere; if not for Daniel Andrews’ generosity to public servants (is there an election in the offing?), overall growth might have slipped below 2%. Wage growth in WA and the Northern Territory was well behind inflation at just 1.5%.
Barring a miracle, the next WPI result for the September quarter will confirm five straight years of wage stagnation under the Coalition — in the June 2013 quarter, annual growth was 3%. By the end of 2013 it had slipped to 2.5% and, quarter by quarter, it fell to the bottom of the 2s, where it has remained ever since. And there’s no sign of growth lifting any time soon — not with the Reserve Bank downgrading its inflation forecasts. The government’s budget forecasts of 2.75% growth this year and 3.25% — 3.25!!! — in 2019-20 now look downright lunatic.
Apart from Daniel Andrews’ efforts to buy votes, the only other thing supporting wages growth is the annual minimum wage case. As AMP’s chief economist Shane Oliver noted, “the lift in wages growth from 1.9% to now 2.1% owes largely to a faster increase in the minimum wage for 2017-18 of 3.3% which was up from 2.4% for the previous year. And from July 1 this year, the minimum wage has increased by a slightly faster 3.5%. But were it not for the acceleration in minimum wage increases wages growth would still be running at around 1.9%…”
The Reserve Bank will be watching all this closely. We know its watchword is a “gradual” pickup in growth, but this is beginning to look glacial rather than gradual — and the longer it takes, the more the recent restatement by governor Philip Lowe that the next move in rates is up may come under pressure.
The Financial Review’s fulminations against the RBA’s approach are continuing, and look increasingly like a form of economic denialism. Neoliberal economist and former bank executive Warren Hogan is continuing a recent push to move the goalposts on the RBA’s inflation target, thereby instantly inventing a need to jack up interest rates to prevent runaway inflation. Imagine if this sort of drivel, peddled by privileged economists with a monetary policy fetish, was implemented: higher interest rates would reduce business investment, accelerate what is currently an orderly deflation of property prices into something much more dangerous, and hit already weak consumer spending. The chances of further reducing unemployment, or of increasing wages growth, would be shot.
But then again Hogan and his mates don’t exactly care a whole lot of about workers, since they want the RBA to “[get] on with the task of monetary policy normalisation when the economy is expanding, even if it comes at the cost reaching full employment a little later than otherwise.” Or as the wage optimists and Treasury insist, “just around the corner.”
Update: the Treasurer’s office advises Crikey it believes it has met the updated budget forecast, noting “budget forecasts are always put together as a 1/4 percentage point. The numbers yesterday round to 2¼ and are therefore consistent with the forecast. It’s completely wrong to suggest otherwise.”