Federal and NSW government decisions to curb public sector wage growth will frustrate the Reserve Bank of Australia’s (RBA) attempts to support the economy through the worst recession in 90 years. The move will leave over 600,000 people and their families worse off over time and impact income tax and GST inflows.
The Morrison government has effectively cut wage rises for over 240,000 Commonwealth public servants to just above zero (at the moment) by linking them to private sector wage growth. The Coalition government in NSW is doing something similar by cutting the wage increase cap from 2.5% to 1.5% for its almost 400,000 public servants.
Between the two governments the move covers around 5% of the Australian labour force.
The problems the RBA (and governments for that matter) is having dragging the economy out of recession were again outlined in a speech on Monday night in Sydney by governor Philip Lowe.
He told a business dinner that “in particular, the challenge facing Australia over the next few years is much more likely to be the creation of jobs, rather than controlling inflation pressures. So that is our focus too. The board wants to do what it can, with the tools that it has, to support the national effort to reduce unemployment.
“One consequence of this higher unemployment is that wage and price pressures are likely to remain subdued. In each of the next two years, we are expecting annual wages growth of less than 2%. And inflation, in underlying terms, is expected to be just 1% next year and 1.5% in 2022.”
That means Commonwealth public servants will probably be lucky to see a pay rise of 0.2% over the next two years because private sector wage growth is slowed and is falling in some sectors.
A further question: does the Morrison government really propose to cut actual wages if the private sector wage price index (WPI) goes negative for a long period of time?
Lowe described the “heavy toll on our labour market” caused by the recession. “Hours worked in Australia fell 10% between March and May and the unemployment rate has risen to 6.9%, with underemployment even higher.
“We are expecting the unemployment rate to rise further over coming months to a little below 8%. In our central scenario, we expect it then to start gradually declining, but still be a little above 6% at the end of 2022.”
Cutting wages or growth in wages will not boost employment; higher demand, especially by households will. So how can the federal and NSW governments justify squeezing wages even further at a time when more spending by consumers is needed and will need to be sustained for a year or more around current levels?
The prime minister gave us all tax cuts so we could spend more. Now he and the NSW government are making that extra spending harder to achieve. Talk about a fiscal own goal.
Despite his claims that we’re all in the recovery together, we’ve gotten another clear sign that there’s one rule for the PM and his government and another for public servants.
From the to-do over ABC wage deals, people will recall any APS (non-SES) pay rises (excluding progressing through in-agency levels/income tiers) were postponed by a decision of the minister in ?March? for at least 9 months.
So once that is over, in some agencies they may not have had a pay rise for approaching 2 years. Now it’s been decided that linking pay rises to private sector wage growth is the new policy.
At least this is a change from the decade long policy where pay-rises were linked to improved ‘efficiencies’ (however you measure that) as approved by the minister (with people like Erica and Ca$h not too easy over multiple EBA cycles).
As a consequence I would suggest that APS staff may have actually gone backwards in earning power over the last decade, and conditions have no doubt got worse. While that must fill the hearts of many non – APS Australians with joy, they can still cry over how well the SES have done.
How do they benchmark APS jobs against the private sector? Salaries of financial planners, lawyers and IT specialists or cleaners and hospitality workers? Will it be like-for-like occupations? And when does pay go up and down?
Sounds like another ideologically-driven, poorly-thought-through idea which will create another mess not unlike when Howard abolished parity across agencies and allowed each agency to manage its own pay rises.
So those in agencies with more clout got bigger pay rises than those performing the same work in agencies with lesser clout. So if you changed agency to do similar work you could if you were lucky get a big pay rise, or think seriously about moving when it involved a drop in pay.
This government really does not understand macroeconomics and has no desire to learn.
Money paid to public servants then gets spent, becoming income for the private sector. In some ways it’s probably the best targeted government spending, since in addition to the macro multiplier effects the government is getting something provided directly to it as a result.
They are really economic vandals, aren’t they. Wage rises in the public sector usually puts pressure on the private sector to also increase the wages, which is overall a good outcome.
All we have seen is stagnating/wages going backwards – whilst the top echolon in private businesses often see increases.
Then what about :-
“It’s as if the RBA is trying to steer the raft of what’s left of our economy up this government’s Poo Creek – against their turbulent tide of effluence?“
One outta three – but that’s the drift.