In a clear triumph of right-wing ideology and business self-interest over economic growth and the advice of the Reserve Bank, the government intends to directly undermine wages growth by locking in what will amount to a “worse off overall” test for the next two years for workers.
That’s the proper name for Christian “Public Bar” Porter’s proposal to allow businesses to cut wages in enterprise agreements based on a vague “public interest test” — with workers knowing they can be pushed back to award minimums if they fail to agree to them.
While references to Workchoices and its return have been a dime a dozen for the past twelve years, this proposal is straight from that ill-starred Howard government reform program that saw wages cut and labour productivity slump.
Making it even easier for employers to reduce wages will further accelerate two trends in the labour market in recent years. Employers have been able to keep the benefits of greater productivity, meaning a long-term decline in the wage share of national income, which fell to 49%, its lowest level ever recorded on a seasonally adjusted basis in the September quarter, while the profit share rose to 31%, its highest ever level.
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And, of course, the wage stagnation that has characterised the economy since the Coalition was elected, and has now turned into outright real wage falls as a result of the recession.
Private sector wages rose just 0.1% in the September quarter and 1.2% for the year. The Reserve Bank forecasts that wages growth will only “recover” to 1.75% by the end of 2022. The government’s new “worse off overall” test will further suppress wages growth — along with the government’s new policy to stop public sector pay rises from rising above private sector levels.
Where exactly the government and business think additional household spending will come from once the initial burst of recovery expenditure in the wake of the economy reopening is going to come from is anyone’s guess.
Consumer confidence can be sky-high but if workers’ wages are going backwards, or they’re worried they’re going to have their pay cut, why would they do anything other than what they’ve been doing in the years of wage stagnation, and keep their spending down?
Combined with its punitive attitude toward public service pay, the government appears hell-bent on suppressing household spending as much as it can, convinced that’s what’s best for its business donors.
What level of wages growth is low enough for the government? It’s nearly down to 1% now. Does it want zero wages growth? Does it want negative wages growth?
The implications for the recovery are significant — and have been completely missed by the press gallery in the coverage of Porter’s latest assault on workers. The Reserve Bank is desperate to get inflation back up again.
“Australia is likely to experience a run of years with unemployment too high and wage increases and inflation too low, leaving us short of our goals,” RBA governor Philip Lowe told parliament last week.
In the December board meeting statement earlier last week, Lowe was clearer still, saying “the board will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range. For this to occur, wages growth will have to be materially higher than it is currently.”
Last year, Lowe was blunter still about what wage stagnation did to the economy and household spending. In August 2019 he told politicians “it has become increasingly clear that the extended period of unusually slow growth in household incomes has been weighing on household spending,” adding “caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes.
At the aggregate level, my view is that a further pick-up in wages growth is both affordable and desirable.”
Porter’s attack on workers will do something else as well. It is workers and households that have been the heroes of the recovery. While business has hidden in its bunker, Australians have endured lockdown, complied with often draconian restrictions on their freedom, then emerged to get back to work and start spending in exactly the way the government has urged them to.
Their reward for that? Workchoices 2.0, designed to undermine their wages and further tilt the industrial relations playing field in favour of employers.
It’s vicious, ideological and idiotically self-defeating.