Former ACTU president Sharan Burrow will deliver the second annual Carmichael Lecture.
Blog
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Bolstered by a biased tax system, house prices keep rising
Despite rising interest rates, the latest figures from the Bureau of Statistics show that Australia’s house prices rebounded in the March quarter of this year. Policy director Greg Jericho writes in his Guardian Australia column that since the beginning of the pandemic property prices around Australia have risen 26% while at the same time average household disposable income has increased just 8%.
This disparity has massive consequences for affordability. Had for example the median property price in Sydney risen in line with household incomes since June 2020, instead of being $1.15m it would be $954,000 – a $196,000 difference.
Underlying the strength of the market even in the face of rising interest rates is the fact that Australia’s tax system is biased towards property investors.
The most recent taxation statistics covering 2020-21 showed for the first time the number of investors recording property net profits was greater than those recording a loss. Such a situation only occurred because of the record low interest rates at the time. We know that the past 12 months will have seen a large spike in the number of people negative gearing their properties and thus not surprisingly housing remains an attractive investment not in spite of rising interest rates, but because of rising interest rates.
The post Bolstered by a biased tax system, house prices keep rising appeared first on The Australia Institute's Centre for Future Work.
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The economy is slowing as households get smashed by yet more rate rises
The March quarter saw Australia’s economy grow a rather pathetic 0.2% and fall 0.3% in per capita terms. As policy director Greg Jericho writes in his Guardian Australia column, the economy is slowing at a pace that normally would see the Reserve Bank thinking about cutting rates.
And yet as poor as these figures are, worse is likely to come as the March quarter does not include the two most recent rate rises and only a small amount of the impact from the rate rises in February and March. Both the Treasury and the RBA estimate the Australian economy will go backwards on a per capita basis over the next year and these figures suggest their estimates are if anything too optimistic.
Households are reducing their savings as wages fail to keep up with inflation. Over the past 2 quarters, household consumption grew at an annualised pace of just 1%. Whenever household consumption has grown that slow the economy has either been in a recession or teetered on the edge.
And yet despite acknowledging there was uncertainty over household spending, the RBA on Tuesday decided to raise rates in order to essentially slow household spending.
All they have done is once again hit households that already need a standing 8 count.
The figures pleasingly showed that total wages are now growing solidly due to both increased employment and better wage growth. But this has not come at the expense of profits, indeed corporate profits in the March quarter rose 3.2% – faster than the 2% increase in unit labour costs. Real unit labour costs rose just 0.2% in the March quarter while real unit profit costs rose 1%.
This again highlights that profits more than wages drive inflation, and raising rates to slow wage growth by raising unemployment is a poor monetary policy that only risks an unnecessary recession.
The post The economy is slowing as households get smashed by yet more rate rises appeared first on The Australia Institute's Centre for Future Work.
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Blame Game on Inflation has Only Just Begun
That’s because inflation never affects all prices and incomes evenly. Some prices shoot up, while others grow slowly or decline. Some incomes keep pace with rising prices (or even outpace them), while others lag far behind. Thus the impacts of inflation are always uneven. And this sparks economic and political controversy.
This distributional conflict is readily visible in current Australian inflation. As prices took off after the lockdowns, corporate profits surged dramatically, reaching their highest share of GDP ever by 2022.
Meanwhile, wages – which were historically weak even before the pandemic – lagged far behind. In the last two years, consumer prices rose 12.5% (and more for essentials, like food and energy). Average wages grew less than half as much – barely 6% – in the same time.
That means the purchasing power of workers’ wages is falling. It’s the biggest and fastest real wage cut in postwar history – and record profits from those higher prices are the corollary of workers’ falling real incomes.
Despite the fact that wages have lagged, not led, recent inflation, the powers-that-be are still targeting workers to bear the brunt of the anti-inflation effort. The Reserve Bank is now using high interest rates to cool off employment and slow wage growth.
This inflation has produced clear winners, and clear losers. So it’s a myth to proclaim that inflation “hurts all Australians,” pretending we can all join together in a shared national effort to wrestle prices to the ground.
Our Centre for Future Work published research showing just how lopsided the impacts of inflation have been in Australia. We analysed official national accounts data from the ABS, including income flows, output data, and changes in average economy-wide prices.
From end-2019 (just before the pandemic) to September 2022 (latest data at the time), higher corporate unit profits accounted for 69% of excess inflation (over and above the RBA’s 2.5% target). Unit labour costs accounted for just 18%, and other stakeholders (including small business) the remainder.
This confirmed that workers are the victims of inflation, not its cause, and raised big questions about the RBA’s determination to target wages (not profits) for tough anti-inflation medicine. Our findings sparked widespread interest and anger. So business peak bodies, and business-friendly commentators, have launched a steady stream of attacks against our report since its release in February.
RBA and Treasury officials also disagree with our conclusions. They have not challenged our actual numbers: indeed, internal RBA memos replicated and confirmed our finding that wider corporate profit margins account for the lion’s share of higher prices since 2019.
But despite this evidence, these officials deny soaring corporate profits are a concern in the anti-inflation battle. Profits grew most dramatically in the energy and mining industries, they say. This is certainly true – due in part to sky-high prices paid by Australians for petrol, gas, and other resource-intensive products. So we can’t magically exclude this super-profitable sector from our analysis of inflation, nor our plan for tackling it.
They also claim profits outside of mining have not increased. This is false: non-mining profits have been less spectacular than resources, but profit margins have widened significantly, reinforcing inflation. Consumers are reminded of this every time they visit a supermarket, book an airline ticket, or try to rent an apartment.
In sum, these arguments cannot deny that business has profited mightily from the current inflation – especially, but not solely, in energy and mining – while workers have suffered.
A flip side of this class conflict over inflation was starkly visible last week, when the Fair Work Commission announced a 5.75% increase in Award wages. That doesn’t quite keep up with inflation, but it sure helps.
Within minutes, the same corporate lobbyists so offended by our research, lined up to denounce the wage increase as inflationary. They want Australia’s lowest-paid workers, whose living standards have already declined, to sacrifice further. Little wonder business peak bodies hate ay public attention on their own record profits.
The blame game over inflation will get more heated in the months ahead. Inflation is likely to ease, as many of the unique post-pandemic factors (supply chains, energy price shock, pent-up demand) that underpinned firms’ price increases gradually abate. But real wages have fallen – and workers, understandably, want to repair that damage.
So workers will demand wage gains in excess of inflation. And by all rights, they deserve that. That need not cause further inflation, especially if record high profit margins come back to earth.
Corporations, however, want to sustain their record profits as long as possible. They want to keep wages down, and the RBA seems determined to help. So buckle up: the great Aussie debate over inflation is just getting started.
Jim Stanford is Economist and Director of the Centre for Future Work at the Australia Institute, and the author of Profit-Price Spiral: The Truth About Australia’s Inflation.
The post Blame Game on Inflation has Only Just Begun appeared first on The Australia Institute's Centre for Future Work.
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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.
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Unacceptable Risks: Gig Models of Care and Support Work
New research reveals the unacceptable risks of digital labour platforms and the expansion of gig work in low-paid feminised care and support workforces. Risks are to frontline care and support workers, people receiving care and support and to workforce sustainability.
The report calls for comprehensive industrial reforms to address gig work as part of broader workforce strategies for the NDIS and aged care sectors.
The research finds that care and support ‘gig’ workers, treated as independent contractors, are in highly insecure work without minimum standards and effective rights to collective bargaining.
- Many essential frontline care and support workers earn below award-level pay.
- Work and incomes are insecure: work is on-demand, working time is fragmented, pay can be unpredictable.
- Workers must cover their own superannuation, leave and workers’ compensation.
- Gig work in the feminised workforces poses a serious threat to better recognition and equal pay.
- Better jobs and careers for frontline workers are vital to closing the gender pay gap.
Four in every 5 of the 240,000 aged care and disability support workers are women.
- Care and support workers on platforms are younger, less experienced and more likely to be migrant workers.
- Platform workers lack access to support, training and progression opportunities.
- Gig workers lack employment benefits and entitlements, including leave and superannuation.
Flexibility of work is only possible with short hours work and comes at the expense of decent pay and working conditions. Workers cannot earn a living wage.
- Risks to workers are also risks to vulnerable people with disability and the elderly.
- Care and support platform workers are isolated and largely invisible, working in private homes without organisational supervision, support, guidance or training.
- Workers bear risks and responsibilities for care and support quality and client safety, including for highly vulnerable people.
- Care labour platforms compete unfairly with other NDIS and aged care providers.
- Unfair competition poses a significant threat to the sustainability of Australia’s long-term care systems.
Platforms compete by avoiding the costs and risks of business fluctuations, of employing workers and of accountability for care and support quality and safety. Costs and risks are devolved to low-paid and insecure frontline workers. Platforms profit from retaining public funding that is intended to employ and pay essential workers fairly and to provide them with supervision and support.
The post Unacceptable Risks appeared first on The Australia Institute's Centre for Future Work.
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Workplace Law Reform Must Limit Cancer of Gig Work in Care Economy: Research
Researchers have recommended limits are placed on the growth of gig work in the NDIS as part of the third tranche of the Commonwealth Government’s industrial relations reforms later for later this year. Researchers say the promised reforms to ‘Employee-like’ forms of work should be used to protect minimum employment standards and quality service delivery for care workers and consumers.
Key findings
- The gig work model is growing in the care economy and NDIS, undermining wages, conditions and gender pay equality
- Care workers on platforms are younger, less experienced and more likely to be migrant workers than workers in the broader care and support workforce.
- Platform care work is insecure on-demand work, working time is fragmented, pay can be unpredictable. Many workers’ earnings are equivalent to below award-level pay.
- Worker-friendly flexibility is limited and is mainly only possible in short hours jobs. Flexibility comes at the expense of a living wage.
- Care and support platform workers are isolated and largely invisible, working in private homes without organisational supervision, support, guidance or training.
- In platform and other independent contracting arrangements, risks and responsibilities for care quality and client safety are devolved to individual workers.
- Platforms compete by avoiding the costs and risks of business fluctuations, of employing workers and of accountability for care and support quality and safety. Costs and risks are devolved to low-paid and insecure frontline workers.
- Platforms profit from retaining funds that are allocated for employong workers and providing training and supervision.
“Unregulated gig work is a cancer for workers rights in Australia,” said Dr Fiona Macdonald, Policy Director, at the Australia Institute’s Centre for Future Work.
“The growth of gig work on digital platforms in the care economy eats away at minimum employment conditions and shifts risk on to care consumers and staff.
“Care is a public good. Stopping the gigification of disability and aged care workforces is necessary to prevent public funding allocations for essential workers’ wages, superannuation, training and supervision from being diverted to profits.
“Sector-specific reforms are currently being considered for the road transport industry. Yet, in the public care and support sectors, the same concerns—safety, sustainability and viability—are being approached through disconnected policy processes, rather than being addressed head on.
“The Women’s Budget Statement reiterated the Government’s commitment to ‘a sustainable and productive care and support economy that delivers quality care and decent jobs’. Gig care work should be addressed with a view to gender equality.
“We are seeing the Gigification of care work and, without protections, we will risk seeing this spread to other sectors of the labour market.”
Recommended policy responses:
- The Government has committed to reforms to ‘Employee-like’ forms of work in 2023
- These reforms must be designed to restore full employment rights and benefits to all care and support workers, including minimum wages, super & WHS
- Comprehensive employment minimum standards should apply for all care and support workers, regardless of employment status
Digital platforms in the care sector should be bound by mandatory codes of conduct
The post Workplace Law Reform Must Limit Cancer of ‘Gig Work’ in Care Economy: Research appeared first on The Australia Institute's Centre for Future Work.
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Profit-Price Spiral an Inconvenient Truth for Big Business: Economists
New media reports today quoting former Australian Competition and Consumer Commission Chair Rod Sims have reaffirmed the findings of Australia Institute research showing excess profits from companies like Coles and Woolworths are significant contributors to inflation.
Key Points:
- Real wages fell 4.5% in 2022, the largest drop in a single year on record
- Empirical data shows excess corporate profits account for 69% of inflation beyond the RBAs target range, while unit labour costs account for just 18%
- As of the September quarter of 2022 Australian businesses increased prices by a total of $160 billion per year over and above their higher expenses for labour, taxes, and other inputs, and over and above profits generated by growth in real economic output
- Without the inclusion of those excess profits in final prices for Australian-made goods and services, inflation since the pandemic would have been much slower: an annual average of 2.7% per year, barely half of the 5.2% annual average actually recorded since end-2019
- Companies including Coles, Woolworths, Banks, Airlines and fossil fuel companies have all posted huge profits recently, with experts blaming a lack of competition
“That the business lobby has been unable to disprove a single number from our research is a testament to the careful, evidence-based nature of our work,” said Dr. Jim Stanford, Director of the Centre for Future Work and report author.
“It’s notable that many of the voices now seeking to cast doubt on the evidence behind a profit-price spiral were silent during the prolonged rhetoric on the existence of a wage-price spiral.
“The report ‘Profit-Price Spiral: the Truth Behind Australia’s Inflation’ contained new macroeconomic data confirming that increasing profit margins per unit of real output in Australia’s economy account for a strong majority (over two-thirds at that time, based on September quarter 2022 data) of above-target inflation since the outbreak of the COVID pandemic in early 2020. The data we presented on the surge in profits, coincident with rising inflation, is clear, sourced to ABS data, and has not been challenged.
“The RBA’s internal correspondence about our report (released as part of a freedom of information request) in fact replicated and verified our finding that rising profit margins account for the bulk of increased nominal valuations in Australia, comparing end-2019 to late-2022.
“Macroeconomic trends since then (including December quarter 2022 data released after our initial report) confirm that unit profit margins are still elevated.
“Contrary to the view of some Australian commentators, numerous high-quality research reports from think tanks, universities, and even central banks in other countries have confirmed the importance of rising profit margins in explaining the acceleration of inflation since the COVID pandemic, using methodological approaches similar to our own statistical decomposition. We cited several of those complementary studies in our follow-up report, Profits and Inflation in Mining and Non-Mining Sectors, and other similar research has been published more recently.
“The main thrust of the critical commentary on our report has not been to challenge its empirical findings on the rapid increase in profits, but rather to deny that any generalised increase in profitability has been the cause of the inflation. Some claim that the rise in profits has been limited to the mining sector, which somehow doesn’t ‘count’ – even though products produced by that sector (including petrol, gas, and other fossil fuels) have been a leading source of recent inflation.
“Our subsequent research showed that profit margins have also increased (albeit less dramatically) in several non-mining sectors. Others claim that swollen profits are just a side-effect of inflation that was caused by other forces (usually including supposed excess wage growth or consumer disposable incomes). That debate over the direction of causation is rather moot: the undeniable reality is that profits are at all-time record levels in Australia, while workers’ real wages continue to decline.
“Business peak bodies who argue for continued wage suppression desperately want to hide the reality that they have profited from the inflation that is causing a crisis in living standards. This explains their interest in trying to challenge our findings.
“The Australia Institute stands by its research. Arguing about the dimensions, causes, and remedies of the inflation problem is a normal part of the national economic debate. We look forward to similar scrutiny being applied to those arguing that wages are driving inflation in Australia.”
The post Profit-Price Spiral an Inconvenient Truth for Big Business: Economists appeared first on The Australia Institute's Centre for Future Work.
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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.
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