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  • 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.

  • Commonwealth Budget 2023-24: Significant Progress

    This briefing reviews the main features of the budget from the perspective of workers and labour markets. Some of its measures are very positive, such as fiscal support for higher wages for aged care workers, increased JobKeeper benefits, and enhanced Commonwealth Rent Assistance.

    Contrary to concerns that a big-spending budget would exacerbate inflation, this budget will have little impact on overall aggregate demand. In fact, it will pro-actively reduce inflation through its new $500 energy relief plan. Contrary to conservative economists who claim this budget will fuel inflation, in reality the forecasts confirm historically slow growth in public demand in both 2022-23 and 2023-24.

    Despite these positive measures, the budget also contains disappointing aspects. Most importantly, the Stage 3 tax cuts remain on schedule. And while they are only set to begin in 2024-25, they hang over these budget figures like a dark spectre.

    The budget papers also confirm the economy is far from buoyant. The next 18 months are expected to see economic growth well-below average. Households are reacting to three years of falling real wages, and eleven painful increases in interest rates, by severely constraining consumer spending. Slowing job creation and declining real wages are taking their toll on overall economic growth, highlighting again that the key to a strong economy is strong employment and wage growth.

    Please read our research team’s full review of this historic budget.

    The post Commonwealth Budget 2023-24 appeared first on The Australia Institute's Centre for Future Work.

  • RBA Review a Missed Opportunity

    The report represents the most important reconsideration of monetary policy in Australia since the advent of inflation targeting three decades ago. But the “new look” RBA after this review may even do more harm to the economy than in the past. This is because the independent review panel missed the opportunity to question the deeper myths and assumptions regarding the central bank’s infallibility and their ideological bias.

    In this report, Centre for Future Work Associate Dr Anis Chowdhury catalogues the assumptions and failures of conventional inflation targeting policy, and the misleading nature of so-called ‘independent’ central banks. He argues the review panel missed an historic opportunity to reconsider those assumptions, and help craft a more balanced and democratic macroeconomic policy framework.

    The post RBA Review a Missed Opportunity appeared first on The Australia Institute's Centre for Future Work.

  • Affordability of a Liveable Jobseeker Payment is a Non-Issue

    Commonwealth on Track for Diminutive Deficit or Surplus in 2022-2023

    In the lead-up to its 2023-24 budget, the Labor Government finds itself in an awkward position, accepting that the Jobseeker payment is “seriously inadequate” and an impediment to regaining work, yet professing that it lacks the financial capacity to afford a meaningful increase anytime soon.

    The Economic Inclusion Advisory Committee’s (EIAC) April 2023 Interim Report recommended raising Jobseeker from 70% of the Pension up to 90%. The current Jobseeker base rate for a single person with no children is $693.10 per fortnight. Lifting it up to 90% of the current Pension payment of $971.50 per fortnight would provide the unemployed with an extra $181.25 per fortnight (or $12.25 per day).

    Labor has baulked at the cost of the EIAC’s Jobseeker proposal. There is speculation that the upcoming budget will include a $50 per fortnight increase in the Jobseeker payment for those over 55 years of age. It is unclear if that increase will apply to everyone over 55 years of age, or just to the 55 to 59 year old cohort who are currently ineligible for the additional $52 per fortnight already available to those over 60 and who have been unemployed for longer than nine months.

    A $3.57 per day rise in the Jobseeker payment for those over 55 years of age (or between 55 and 59) seems rather stingy. One might expect that the plight of the unemployed—among the least well-off and most financially-constrained members of society—would be a high priority in the middle of a cost-of-living crisis.

    Before last year’s election, the Labor party abandoned a previous pledge to raise Jobseeker payments, on concerns about growing Commonwealth government debt. The EIAC then only came about as a concession to gain Senator David Pocock’s support for the Secure Jobs Better Pay Act 2022.

    Labor’s meme of “inheriting a trillion dollar debt that will take generations to pay off” has echoed the Coalition’s 2013 so-called “budget emergency”, also used to blame the preceding government. The nation’s allegedly dire fiscal position was cited by Bill Shorten as justification for not adopting the EIAC’s key recommendations: ‘We can only do what is responsible and sustainable and unfortunately the budget we inherited from the previous government is heaving with a trillion dollars of Liberal debt, so [we] can’t do everything.’

    The strategy of deflecting accountability for policy choices on grounds of fiscal constraint has become less credible, given the robust post-pandemic economic recovery and the boom in commodity prices – all of which has generated large improvements in the Commonwealth government’s fiscal position. As illustrated in Figure 1, the government’s underlying cash deficit for the current financial year (2022-23), once expected to be $100 billion, has shrunk dramatically.

    Sources: Australian Government, Budget Papers, Monthly Financial Statements. Author’s calculations.

    Indeed, the Commonwealth Government’s latest Monthly Financial Statements show that it is on track to post a very small deficit, or even a surplus, for the 2022-23 financial year. As of March 2023 the underlying cash balance (UCB) had improved by $23.3 billion over the estimates in the October 2022-23 Budget. If the year-to-date deficit changes little in the last quarter, and with higher GDP than previously estimated, then the UCB in 2022-23 would come in at a diminutive -0.5% of GDP. That’s insignificant by any meaningful economic standard.

    Further upside is possible. If the average monthly improvement from November 2022 to March 2023 continues in the last quarter of the financial year, the UCB in 2022-23 would be a surplus of $2.8 billion.

    Australia’s public debt load – also measured appropriately as a proportion of GDP (rather than in big scary ‘trillion dollar’ terms) is also modest when compared to the nation’s peers and to its own historical record. Our general government debt (including state governments) is lower than any G7 economy, and half the size of the average for advanced economies. The same cannot be said, however, for Australian households: their debt is higher than any G7 economy, and ranks second (behind only Switzerland) among all industrial countries (see Figure 2).

    Figure 2: Government and Household Debt

    Sources: International Monetary Fund, World Economic Database. Bank for International Settlements, Credit to the Non-Financial Sector.

    Having switched from “opposition mode” into “governance mode,” it makes sense for Labor to start to talk up the nation’s public finances. Such a narrative would be plausible given that Australia’s fiscal position is robust and sustainable: now and into the foreseeable future. That is the current assessment of the International Monetary Fund in its latest Article IV Consultation, amongst others.

    The prospect for further substantial improvement in the UCB over the forecasts – and perhaps even a surplus – should raise expectations about what the government can do to ease cost-of-living pressures. Arguably, however, a liveable unemployment benefit should be prioritised regardless of the economic and fiscal outlook.

    The EIAC’s Jobseeker proposal is estimated to cost $24 billion over four years. Implementing all of the EIAC’s other recommendations brings the cost to $36 billion. The annual cost of the full package would amount, respectively, to just 0.3% of GDP in the next financial year. Such expenditures, while having a diminutive impact on the Commonwealth Government’s fiscal position, would literally transform the lives of the unemployed.

    When all is said and done whether a nation should have a liveable unemployment benefit is a question of principles. There is an obvious option for Labor to allay its worries about the budgetary or inflationary pressures of a liveable Jobseeker payment: namely, jettison the 2024-25 Stage 3 tax cuts, that are estimated to cost $300 billion over the first nine years. Tax cuts that mainly benefit high-income earners make no sense in an economic landscape where over 90% of the pre-tax income gains from growth in national income have in recent experience gone to the highest-income 10% of households.

    The reluctance of the government to discard or redesign the Stage 3 tax cuts is attributed by some to the Labor Party’s pre-election commitments. It remains that the tick boxes for good governance do not include steadfast adherence to suboptimal policy positions. Overseeing regressive tax cuts, while being unwilling to meaningfully improve the lot of the least well-off, has those principles back-to-front.

    Dr Brett Fiebiger is a post-Keynesian economist. His research focuses on macroeconomic policy, growth theory and income distribution.

    The post Affordability of a Liveable Jobseeker Payment is a Non-Issue 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.

  • 7% Minimum Wage Rise Would Tackle Inflation, not Feed it: Research

    A 7% minimum wage rise would have a virtually undetectable impact on economy-wide prices.

  • 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.

  • Inclusive and Sustainable Employment for Disadvantaged Jobseekers (VIC)

    Employment policy and employment assistance for jobseekers focus on individuals’ skills and job readiness, and on job placement. Less attention is given to ensuring placements are into sustainable employment in inclusive workplaces. That is, placement into jobs that people can keep, that support wellbeing and provide opportunity for long-term employment pathways, and in workplaces where people feel safe and are able to participate. Recruiting and placing people experiencing labour market disadvantage into jobs may not lead to positive outcomes if people are not able to retain jobs and benefit from their employment.

    Employment can provide people with benefits that improve wellbeing in various ways, including through increasing income, providing routine and increasing social contact. However, where job quality, pay or working conditions are poor, employment can also have cumulative negative effects. Placing people experiencing disadvantage in jobs in which they are insecure, underemployed, or cannot establish daily routines; or placing them in workplaces in which they experience poor or discriminatory treatment and disempowerment, are not likely to produce sustainable employment outcomes or create social value.

    This report calls for a greater focus on workplace and job-related factors, including employer knowledge, employment practices, work organisation, job quality and employment arrangements, to addressing barriers to employment for disadvantaged jobseekers. Emphasis on employment placement alone is not likely to produce sustainable employment outcomes. Action is required to tackle barriers present in workplaces and in employment arrangements.

    This report was commissioned by Jobsbank, a Victorian-based not-for-profit organisation that works with business and other partners to support sustainable, inclusive employment and make social procurement work. In Victoria, the Government’s Social Procurement Framework aims to improve employment outcomes for people from groups experiencing labour market disadvantage through requiring suppliers and contractors tendering for high value government contracts to employ people from these groups. The Victorian Government’s Fair Jobs Code promotes fair labour standards, secure employment and job security, equity and diversity, and cooperative workplace relationships and workers’ representation. This report recommends that employers be encouraged to develop strategies to meet these standards through collaboration with unions and community groups as one obvious way to address workplace and employment factors that create barriers to sustainable and inclusive employment for disadvantaged jobseekers.

    The post Inclusive and Sustainable Employment for Jobseekers Experiencing Disadvantage 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.