Workers won’t see decent pay rises until at least the mid-2020s according to the government’s budget update, with the Coalition finally forced to acknowledge that the wage stagnation it has denied for years is now an ongoing feature of Australian life.
The April budget, maintaining years of delusional thinking about the imminent return of wages growth, forecast a rapid rise in the Wage Price Index (WPI) to well over 3% in coming years. Today’s Mid Year Economic and Fiscal Outlook, however, not merely downgrades the government’s Pollyannaish forecast that wages would rise 2.75% this year, but sets the scene for an extended period of sub-3% wages growth, all the way until 2023.
Wages are now forecast to grow just 2.5% this financial year — a figure that still looks ambitious given WPI fell to 2.2% in the December quarter — while 2020-21 growth has been downgraded a massive 0.75 percentage points to 2.5%. Growth in 2021-22 has been similarly revised down to just 2.75% — a humiliation for Treasury forecasters and Treasurer Josh Frydenberg who just a matter of months ago were insisting that surging wages growth was right around the corner.
The government has also been forced to recognise reality and downgraded GDP growth for this year, from an already slack 2.75% in the budget to 2.25%, while the unemployment forecast has lifted from 5% this year and next to 5.25% until 2022. The government still expects growth to reach 2.75% in 2020-21, mainly on the back of mining investment and higher than previously forecast public spending.
As a result of stagnating wages and tepid growth, as well as additional spending previously announced, Frydenberg’s forecasts for budget surpluses have been cut back significantly. This year’s surplus is now expected to be just over $5 billion, down from $7 billion; next year’s has been almost halved to $6.1 billion and both subsequent years have been cut in half. The government says it has had to cut over $32 billion in forecast revenue due to the economic slump, including $3 billion this year.
Today’s document, of course, is a huge contrast with the sunny optimism of the budget and the government’s election campaign, in which we were repeatedly told that the economy was strong and wages growth was coming. Wages growth is now further away than ever — on today’s figures (which still look a tad optimistic) workers will have racked up a full decade of slow growth before wages crawl back to a measly 3%.
The government’s revenue writedowns are, then, its own fault. It has presided over a policy of deliberate wage stagnation and reliance on income tax bracket creep that has hammered household spending. The sector that provides 60% of our economic grunt has been sent into a coma as households, without pay rises, have stopped spending — even cutting spending as fears of employment uncertainty take hold.
And perhaps Treasury, having completed yet another year of the humiliating ritual of downgrading its absurd wage forecasts, is losing its taste for it: its more plausible wage forecasts, which are far more consistent with the Reserve Bank’s gloomy forecasts, now stand less of chance of having to be revised next May and this time next year.
But as the Great Morrison Stagnation sets in, don’t count on it.