Australians have been denied a real wage increase since Labor came to power 18 months ago due to high inflation.
By the time wages growth eventually catches up with inflation in 2024, the typical worker would have suffered three years of their pay failing to keep pace with the cost of living.
This is despite nominal wages surging by 1.3 per cent in the three months to September – the fastest quarterly increase in records going back to 1997.
A former Reserve Bank board member fears new industrial relations laws could keep inflation high, leading to more rate rises as pay rises continue to lag behind the consumer price index.
Treasurer Jim Chalmers goes on about wages growth being weak during the Coalition’s nine years in power – despite workers getting no annual real wage increase since Labor won the May 2022 election.
‘The Liberals and Nationals spent a decade in government deliberately keeping wages down,’ he said last week.
‘Peter Dutton and the Coalition – now in Opposition – still want to keep wages low.’
But when Mr Dutton, the Opposition Leader, was a cabinet minister under former Liberal prime ministers Tony Abbott, Malcolm Turnbull and Scott Morrison, workers actually enjoyed annual real wage increases.
That’s because inflation mainly remained under 2 per cent from late 2014 until late 2019 – putting the consumer price index on the other side of the Reserve Bank’s 2 to 3 per cent target.
In 2023, the wage price index grew by a record 1.3 per cent in three months to September, marking the fastest quarterly growth since the Australian Bureau of Statistics began keeping records in 1997.
Annual real wages increases
COALITION: 0.8 per cent in 2014; 1.1 per cent in 2015-16; 0.4 per cent in 2019
LABOR: Minus 4.5 per cent in 2022; minus 1.4 per cent in September 2023
The annual increase of four per cent was the highest since 2009.
But with consumer price index inflation at 5.4 per cent, real wages over the year actually fell by 1.4 per cent.
Australian inflation is the highest in the OECD, after New Zealand.
The figure is in stark contrast to when the Coalition was in power.
In the 2015-16 financial year, wages grew by 2.1 per cent but with inflation at 1 per cent, workers received a real wage increase of 1.1 per cent as Turnbull overthrew Abbott.
Under the Abbott government in 2014, wages rose by 2.5 per cent as the CPI edged by just 1.7 per cent – meaning workers received a real wage increase of 0.8 per cent.
In 2019, under the Morrison government, wages rose by 2.2 per cent but with inflation at 1.8 per cent, that translated into a real wage rise of 0.4 per cent.
Australian workers actually haven’t had an annual real wage increase since March 2021 – a few months before Sydney went into lockdown – when wages grew by 1.5 per cent as the CPI rose by 1.1 per cent.
That meant a small real wage increase of 0.4 per cent.
In 2022, when both Labor and the Coalition were in power, Australian workers suffered a real wage cut of 4.5 per cent as the wage price index of 3.3 per cent lagged behind the 32-year high inflation rate of 7.8 per cent.
Under the Coalition, real wages grew – albeit in an underwhelming way – because inflation remained low even as the RBA cut the cash rate from 2.5 per cent in February 2015 to a record-low of 0.1 per cent in November 2020 during the pandemic.
But under Labor, the RBA has raised rates 12 times to a 12-year high of 4.35 per cent, after starting in May 2022 during the election campaign.
There was good news, however, in the quarterly wage price index with the 1.3 per cent increase in the three months to September outpacing the 1.2 per cent rise in the CPI – meaning a real wage rise of 0.1 per cent.
‘While there will be some volatility in quarterly data, Treasury also expects annual real wages to return to growth in early 2024,’ Dr Chalmers said.
Labor has also introduced the Closing Loopholes Bill that would give trade unions the power could apply to the Fair Work Commission to have ‘same job, same pay’ rules applied to workers employed by a labour hire company.
‘This year’s Closing Loopholes Bill before the Parliament is focussed on closing the loopholes that undercut workers’ wages, conditions, and safety,’ Dr Chalmers said.
But Warwick McKibbin, who was a Reserve Bank board member from 2001 to 2011, said Labor’s laws were likely make it even harder for employers to find staff, adding to inflationary pressures as a fall in productivity led to customers being charged more.
‘Ironically, the government’s labour policies are actually restricting supply,’ he told Daily Mail Australia.
‘Equal work, equal pay-type policies actually reduce productivity – that makes it even worse.’
Higher wages feeding higher inflation could lead to even more interest rate rises.
‘You have to have demand and supply equilibrate but if no one does it, then the central bank has to,’ Professor McKibbin said.
Professor McKibbin, who is now the director of the Australian National University’s Centre for Applied Macroeconomic Analysis, is expecting three more rate rises that would take the cash rate to 5.1 per cent – a level unseen since December 2008.