My Blog

Author: Greg Jericho

  • The level of public housing needs to return to previous levels

    There is rarely a debate in Australia that generates more heat than housing. The causes of housing unaffordability and the solutions to it are varied and often get bogged down in power plays and political scaremongering. But as policy director Greg Jericho notes, building more homes is a pretty obvious solution, and more public housing needs to be at the forefront.

    The NSW Productivity Commission this week released a report into housing in NSW that recommended “Building more homes where people want to live.” To this end it suggested raising average apartment heights in suburbs close to the CBD, allowing more development near transport hubs and encouraging townhouses and other medium-density development.

    All of this is worthy. And if combined with the reform of the negative gearing and the capital gains discount will do much good.

    But the report noted that “New South Wales experienced a 45% surge in priority applicant households on the social housing register, with 6,519 priority social housing applicants waiting for assistance as at 30 June 2022”. And yet it did not mention public housing or any social housing solutions at all.

    In the past public housing was a much greater share of Australia’s housing market.

    In 1983 14 public housing building approvals were made for every 100 private sector ones. Now it’s 1.7:100.

    The level of new housing per head of population has fallen and it is thus little wonder that house prices have risen beyond the means of many.

    We need more housing and we desperately need more public housing.

    In the 2019 election campaign, the ALP pledged 250,000 new houses over 10 years. That has now become 30,000 over 5 years under the proposed Housing Fund. It is time for more ambition from the government and more housing for low and middle income earners.

    The post The level of public housing needs to return to previous levels appeared first on The Australia Institute's Centre for Future Work.

  • Real wages falls and interest rates rises signal tough times for households

    The Australian economy – like all economies – is about people. And yet too often company profits are used as a judge of economic health. Throughout the pandemic and in the years since, company profits have soared while the real wages of workers has fallen. This situation is inherently unsustainable with an economy dependent upon household consumption. As policy director Greg Jericho writes in his Guardian Australia column, we are beginning to see households struggle to keep going.

    The Budget delivered this month by Treasurer Jim Chalmers revealed that the next financial year starting in little over a month is set to be one of the worst in the past 40 years. Household consumption is expected to rise just 1.5% – the 5th worst since 1985-86. Even worse if we account for an expected 1.7% rise in population this means in a per capita sense, real household spending is about to fall.

    And when household spending slows, so too does the entire economy.

    We have already see the beginnings of this with sharp slowing in the volume of retail spending being done, all while the amount of money we are spending rises. In effect we are paying more for less. This means the “nominal” figures in the retail trade data hides the weakness in the economy and the pain households are going through.

    With mortgage repayments rising nearly 80% in the past year, households are switching from spending in shops and on services that employ people, to paying off their loans – driving up the profits of banks ever more, but in doing so actually slowing the economy.

    The Reserve Bank is getting what it wanted – a slowing economy, less money being spent and rising unemployment. But with conditions only seen in recessions expected in the next year, the risk that this slowing will lead to the economy stopping completely is rising, and the Reserve Bank must not raise rates any further and be extremely mindful of the pain they have already caused to households struggling from the fastest increase in loan repayments in over 30 years at the same time as real wage fall faster than they have on record.

    The post Real wages falls and interest rates rises signal tough times for households and the economy appeared first on The Australia Institute's Centre for Future Work.

  • Wages are growing solidly but real wages continue to plummet

    The good news of the strongest wages growth since 2012, writes policy director Greg Jericho, in his Guardian Australia column, is tempered by the fact that real wages have fallen back to levels last seen in early 2009.

    The 3.7% growth in the wage price index demonstrates that workers are finally seeing some return for the tighter labour market in which unemployment is at around 50-year lows. It also reflects that public servants are also becoming free of the wage caps over the past decade that had purposefully kept wages down.

    In the March quarter for the first time in more than a decade, public-sector wages grew by 0.9%. Private-sector wages have also grown above 0.75% for 4 straight quarters – the first time since September 2012.

    But even with this very good wage growth, workers are seeing their living standards fall. In real terms, wages fell 3.1% in the past year and are now 5.4% below where they were before the pandemic. This destruction of purchasing power will take many years to recover. And it highlights that wages should rise faster than inflation and with workers being the ones who have suffered the most from inflation, they should not be expected to suffer once inflation is back within normal ranges.

    The post Wages are growing solidly but real wages continue to plummet appeared first on The Australia Institute's Centre for Future Work.

  • Don’t worry about a budget surplus, worry about a slowing economy

    The Budget announced this week by Treasurer Jim Chalmers revealed a projected surplus in 2022-23 before returning to a deficit in the future years. In response many commentators and economists have suggested that the budget is therefore expansionary and will fuel inflation. But as policy director, Greg Jericho notes in his Guardian Australia column given the projected slowing economy, if anything the budget should be more expansionary.

    Most of the claims around the budget fueling inflation are based on the movement of the budget from surplus in 2022-23 to deficit in 2023-24. And usually, this would suggest that the government is stimulating the economy. But when we look at the actual figures within the budget, the overwhelming reason for the shift from surplus is due to parameter changes relating to oil, gas, coal and iron ore prices. The spending measures the government is proposing are hardly expansionary at all. Their direct impact on total household income is minimal, and the largest spending is on reducing medical and energy bills rather than directly giving households more money.

    When we look at the forecasts for public demand growth we see a level of expansion that is more akin to an austere budget than one attempting to stimulate the economy.

    But when we also look at the forecasts for economic growth over the next two years we see an economy slowing quite abruptly in a world that is teetering on a global recession. In the past, such weak forecasts for household spending and GDP growth would have seen governments spending more and lifting economic growth.

    This budget appropriately deals with the concerns of inflation by directly lowering the costs of energy and medical bills – it demonstrates that governments do have a role to play in lowering inflation and that it need not be done purely by the traditional view that the government must slow the economy. The economy is already projected to slow, and by this time next year the calls will likely be less about why the budget is not in surplus and more about what is the government doing to simulate the economy

    The post Don’t worry about a budget surplus, worry about a slowing economy appeared first on The Australia Institute's Centre for Future Work.

  • The Reserve Bank’s decision to raise rates shows a total lack of coherency

    Yesterday the Reserve Bank shocked markets and most economists by raising the cash rate to 3.85%. But it didn’t just contradict outside observers, it contradicted the views of the RBA board just one month ago when it decided to keep rates steady.

    Policy director Greg Jericho, writes in his Guardian Australia column that in the month since the April RBA meeting data on inflation has suggested faster than anticipated slowing, the economy overall is now expected to slow more quickly, and there is no sign of long-term wages growth rising beyond what would be consistent with 3% inflation.

    And yet despite this, the board decided to raise rates.

    The decision smacks of a board reacting less to economic conditions and more to the recent Review of the RBA which recommended taking the decisions to change rates away from the current board.

    The Reserve Bank suggested a month ago it needed time to pause and review. Nothing in the intervening time has suggested they made a mistake in not continuing to raise rate, and yet the bank seems determined to slow the economy and raise unemployment to 4.5%.

    The bank is so beholden to neo-liberal views of the non-accelerating inflation rate of unemployment that it is determined to keep raising rates until unemployment rises to a level it believes is “full employment”.

    We know the current level of inflation is largely driven by corporate profits and some overhang of supply-side issues and savings from the pandemic/lockdown period. At no point is there any sign that wages are rising in a manner that is fueling inflation and yet the RBA continues to attack inflation like we are experiencing the mining boom of the 2000s which saw wages and jobs grow strongly, rather than the current boom which is seeing profits grow exponentially and real wages plunge .

    The post The Reserve Bank’s decision to raise rates shows a total lack of coherency appeared first on The Australia Institute's Centre for Future Work.

  • Latest inflation figures show the RBA was right not to raise rates in April

    The March quarter consumer price index figures showed a 7.0% annual rise, however as Policy Director, Greg Jericho, notes in his Guardian Australia column, the monthly inflation figures that were also released on Wednesday showed annual growth had fallen to 6.3%.

    This fall was down from a peak of 8.4% in December and is the slowest growth since May last year.

    The figures reinforce the belief that the RBA board was right to ignore the views of many economists both within and outside the Reserve Bank. Not only is inflation falling but the biggest drivers of inflation in the March quarter were in areas with prices mostly determined by governments or in highly regulated sectors such as the gas and electricity markets. There was little sense of prices rising due to excess demand, rather the combination of price setting in the public sector and by commercial companies making use of high world prices for resources and ongoing supply issues in the housing market served to drive nearly two-thirds of the total increase in overall inflation the March quarter.

    Increasing interest rates would have done nothing to lower prices in these areas – indeed in the rental market any further rates rises would likely be just used as reason for increasing rents more.

    The Reserve Bank was right to stop raising rates. Should the slowing of inflation shows signs of ending before reaching the RBA’s target of 3% it can always cut rates then. For now, inflation is falling as hoped and attention must be drawn to those suffering the most from the rising prices – notably low-income households and those paying off a HELP debt that is set to be indexed by 7.1% – well above the current levels of wage growth.

    The post Latest inflation figures show the RBA was right not to raise rates in April appeared first on The Australia Institute's Centre for Future Work.

  • The Stage 3 tax cuts are bad economics combined with terrible politics. They should be dumped.

    During the 2022 election campaign the ALP in a desperate and misguided move to avoid being wedged, agreed to implement the horrendously inequitable Stage 3 tax cuts. But, as Policy Director Greg Jericho writes in his Guardian Australia column agreeing to bad policy in opposition means you own the bad policy in government – except you get no credit for it and all of the blame.

    While the Stage 3 tax cuts have always been wildly expensive and unfair, with around half of the benefit going to the richest 3%, but the removal of the low-middle income tax offset (LMITO) has made them even more unfair and politically foolish for the ALP.

    Because the LMITO was targeted most at those earning between $50,000 and $90,000 and the Stage 3 tax cuts are least targeted towards those people, it means the removal of the $1,500 LMITO for someone on the median income of $65,000 will only be replaced by a $500 tax cut under Stage 3.

    This means the ALP if it continues to implement Scott Morrison’s tax policy will go to the next election in a position where middle-income earners will be paying more tax than they did in 2022 while people on $200,000 will be $9,075 better off.

    That is a weird strategy for a progressive political party to pursue.

    In reality, the Albanese government will get no credit for implementing the Stage 3 cuts and will get all the blame for leaving around 75% of taxpayers worse compared to the last year of the Morrison government.

    It is time to dump the tax cuts and for the Albanese government to deliver policies that it would be proud to defend. Fairer tax cuts, increase Jobseeker, invest in renewables and other vital infrastructure and improve services.

    The post The Stage 3 tax cuts are bad economics combined with terrible politics. They should be dumped. appeared first on The Australia Institute's Centre for Future Work.

  • Wealth inequality across generations will only fuel voter disenchantment

    While income inequality is an often discussed topic, wealth inequality is just as pernicious though often less discussed issue. Worse still the inequality of wealth across generations has lasting impacts for people into retirement.

    Policy director Greg Jericho writes in his Guardian Australia column how economic policies of the past few decades has served to provide those with wealth more of it, while depriving younger people of gaining a foothold that previous generations had.

    The issue is most acute with housing. Housing affability is often debated with some suggesting that because of lower interest rate than in the past owning a home is not as difficult as in the past. But the reality is that the size of the mortgage relative to incomes is so much greater than in the past that even with lower interest rates payments account for much more income than they used to. Whereas for those entering the housing market in the 1980s one incomes was often more than enough, now two incomes is a necessity.

    But what is often forgotten is that while interest rates were higher at times in the 1980s and 1990s those rates fell and with them did the payments all the while incomes rose. As a result those who bought homes in the 1980s and 1990s saw their repayments as a share of income fall to very low levels – levels unheard of now.

    And while the arguments about whether housing is more or less affordable can turn on definitions of affordability, the fact is that for the first time fewer than half of people aged 30-34 own their own home. That’s not through choice, but through the reality of a housing market that is locking out younger people.

    This in turn sees younger generations have less wealth at their age than did their parents and grandparents.

    It is little surprise that Millennials are not becoming more conservative in their voting as they age in the same way that did Baby Boomers and Gen Xers. The wealth inequality will have ongoing repercussions for political parties who have in the past taken it as given that older voters will vote for them.

    The post Wealth inequality across generations will only fuel voter disenchantment appeared first on The Australia Institute's Centre for Future Work.

  • With the impact of rate rises still to come the RBA is wise to pause

    Since April the Reserve Bank has increased the cash rate by 350 basis points from 0.1% to 3.60% – the fastest and largest increase since the late 1980s. But as policy director Greg Jericho notes in his Guardian Australia column, perhaps as much as a third of the rate rises have yet to fully flow through to the economy.

    While the interest rate of new mortgages has risen the full amount, the average rate of all mortgages has only risen around 209 basis points – with many mortgage holders still yet to have their repayments increase due to the rate rates in December, let alone those in February and March.

    The Reserve Bank noted this in its statement and stressed the need to gather more information before deciding whether to increase rates or keep them steady.

    The most recent GDP figures show the economy overall has slowed and the signs of inflation are that the peak has been reached and much like the USA, it is not heading down. While the path to 3% inflation might take some time there seems little sense of long-term expectations rising and the 350 basis points worth of rises makes it clear the RBA is prepared to act if it believes inflation is accelerating.

    The Centre For Future Work has been calling for a pause in the rates and it welcomes this decision by the RBA. There is minimal risk from observing the data after 10 successive rate rises. And workers whose wages have not kept pace with inflation will be relieved that the RBA is paying heed to warnings that slowing the economy too fast in an environment where inflation has peaked only increases the risks of sending the economy into a recession

    The post With the impact of rate rises still to come the RBA is wise to pause appeared first on The Australia Institute's Centre for Future Work.

  • Stop the fear, give workers a fair pay rise

    It took roughly one day after the New South Wales election for conservative media groups to begin spreading fear about union power and public sector wage blowouts. But as labour market policy director, Greg Jericho writes in his Guardian Australia column these fears are massively overblown and also ignore the reality of how much workers have lost out over the past few years.

    In NSW public-sector wages grew just 2.5% in 2022, well below private-sector wage growth in that state and massively below inflation which rose 7.6% in that state last year.

    Public-sector wage caps were notionally introduced to get the budget back into surplus, but that was just a fib – once the budget returned to surplus the caps remained. The purpose of the wage caps has always been to drive down private-sector wage growth, a point made abundantly clear by former Treasurer Matt Kean when he told an audience at a Business NSW function that removing the public-sector wage cap would see their companies “competing for labour against the public service who were paying huge wage increases.”

    But the reality is the wage cap not only keeps private-sector wages down it has smashed the living standard of public sector workers whose real wages are now more than 5% lower than they were 2 years ago.

    The fear of wage rises must stop.

    The post Stop the fear, give workers a fair pay rise appeared first on The Australia Institute's Centre for Future Work.