Philip Lowe RBA 2018 economic data housing prices unemployment income
RBA governor Philip Lowe (Image: AAP/Dean Lewins)

Now, stop us if you’ve heard this one before…

Remember when — according to the government, the Reserve Bank (RBA) and economists — the years-long stagnation that saw the wages of workers in some of our biggest industries fall below inflation was just a blip?

Growth would soon pick back up to 3.5-4% — the sort of levels wages reached when Julia Gillard and Wayne Swan were in charge. It was as recently as the 2017 budget that Scott Morrison was claiming wages growth would be 3.5% this year, and even higher next.

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Reality has hit since then. Last year’s budget cut wage growth forecasts this year to below 3%. In the now time-honoured fashion, the Mid-Year Economic and Fiscal Outlook (MYEFO) in December cut them further.

The Reserve Bank had kept up the Pollyanna act well into 2018 (when The Australian, hilariously, declared the “wage rise drought” over) before cutting its outlook and admitting last year it really had no idea what was causing stagnation. Its last Statement of Monetary Policy for 2019 locked in the then-existing rate of wages growth, 2.3%, until well into the 2020s.

But last week’s first 2020 Statement of Monetary Policy cut forecasts again. Growth would be 2.2% this financial year, not 2.3% — a small difference but the wrong direction.

November’s forecast that growth would lift to 2.3% into the 2020s has been downgraded — growth will “peak” at 2.3% in early 2021 but then fall back to 2.2%.

That is, the Reserve Bank is now saying wages growth will fall over 2021 and 2022, and despite unemployment falling to 4.8%. It makes Josh Frydenberg’s MYEFO “projection” of 3% growth in 2022 look pretty stupid.

That will be a full decade of wage stagnation. Wage growth peaked in the March quarter of 2011 at 3.9%. It’s been declining since then, but as late as the first quarter of 2013, it was still over 3%.

It got particularly bad in early 2015 when growth slumped from 2.5% to 2.2%, then fell further, bottoming at 1.9% in 2016. It ground higher to reach 2.3% in the nine months to June last year but then dipped to 2.2% in the year to September.

“The majority of firms in the liaison program continue to expect little change in wages growth over the next year,” the RBA said in Friday’s statement, “and only very few firms expect stronger wages growth outcomes in the year ahead.”

“There is also no indication that there will be changes to the government wage caps that have kept public sector wages growth stable over recent years.”

Will we ever see the wage rises workers and their families enjoyed in the Gillard-Swan era again? The RBA’s forecasts suggest something will have to change, and significantly, for growth to pick up above 2.5% after 2022. And that will have to happen while the superannuation guarantee levy is increasing from 9.5% to 12% between 2021 and 2025.

As the RBA pointed out, “based on evidence from previous increases in superannuation as well as the international literature on increases in mandated benefits, it is expected that increases in superannuation payments will be offset to a large extent by lower wages growth outcomes.”

The debate over whether compulsory super rises reduce wages growth is one of the angriest economic debates going.

On one side you’ve got Paul Keating in full Keating mode and an “unholy alliance” (to use Superannuation Minister Jane Hume’s smear) between industry and big bank super.

On the other, the Grattan Institute, the Australian Council of Social Service and a Liberal Party that despises industry super (Liberal MPs who normally reject the “left-wing” Grattan Institute’s reports without even reading them love its work on super).

No matter what modelling the super sector puts forward, it’s hard to see how workers, having been unable to secure decent pay rises outside the heavily unionised and rapidly growing health and education sectors, are going to suddenly extract stronger wages growth on top of incremental increases in super. There’s no magic pudding.

But here’s the rub. Given what we’ve seen over the last seven years of wage stagnation, if we nixed the super increases, does anyone think employers would hand over bigger wage rises?

Axe compulsory super and workers are likely to get both more wage stagnation and poorer retirement incomes.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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