Finance Finance News Company profits are soaring, but wages fall

Company profits are soaring, but wages fall

The mini-commodity boom is pushing up profits, but workers aren't the winners. Photo: Getty
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Company profits have surged to record highs while wages have fallen – a galling result for Australians angered by talk of company tax and penalty rate cuts.

Based on seasonally adjusted figures, company profits rose 26.2 per cent last year while wages rose by only 1 per cent, Australia’s statistics bureau reported on Monday.

This is the best annual figure achieved by Australia’s incorporated businesses in at least a decade, even as workers struggle with record-low wage growth and high unemployment.

Economist Stephen Koukoulas described the result as “quite a big divergence”, and said it confirmed that employees are doing it tough.

“It feeds into that ongoing story of the labour market having a lot of slack. It’s very difficult to get a pay rise, and if you keep your job there’s a big bias towards working only part-time hours, not full-time,” Dr Koukoulas told The New Daily.

Stellar company profits were driven by a huge rise in the December quarter. Gross operating profits of incorporated entities were 20.1 per cent higher than the previous quarter – the biggest quarterly jump since 2001.

‘Gross operating profit’ is how much is left over from a company’s income after operating expenses are deducted, but before interest and taxes.

Investors in mining and financial services companies were the biggest winners. The commodity price boom pushed mining profits up 49 per cent over the quarter, while financial services company profits skyrocketed 108 per cent.

It follows a bumper half-year reporting season for companies listed on the stock exchange – 94 per cent of the ASX200 reported a profit, and almost 70 per cent increased their profit over the year, CommSec reported.

But things aren’t so rosy for workers. Wages and salaries fell -0.5 per cent over the quarter, and rose by only 1 per cent for the whole of 2016, according to the ABS.

He attributed the huge growth in company profits mainly to the commodity price boom of the last six months.

The data will no doubt feed into the anger generated by the Turnbull government’s pledge to cut company tax and the Fair Work Commission’s cut to penalty rates.

Workers affected by the penalty rate cuts may be interested in the profits in the retail sector. While the profits of incorporated retail entities fell -2.9 per cent, unincorporated retail businesses rose +11.5 per cent over the December quarter.

Overall, unincorporated companies grew their gross operating profits in the December quarter by 7.7 per cent, although this was more than a third smaller than incorporated companies.

The big question for Australians will be if companies pass any of their bumper profits on to their employees.

We will also learn on Wednesday the GDP figure for the December quarter, which if negative would plunge Australia into a technical recession.

The Reserve Bank is predicting economic growth will creep up, allowing us to dodge a recession.

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