Money Finance News Private sector workers are still being left behind

Private sector workers are still being left behind

wage price index inflation
Workers in the private sector are being squeezed between flat wages and rising mortgage costs. Photo: Getty
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The latest wage inflation data from the ABS confirms fears that wages just aren’t breaking out of the doldrums they’ve been in for four years.

Wages are growing at an annual 1.9 per cent in the private sector, meaning no real wage rise at all when you consider consumer prices are also growing at 1.9 per cent.

Wages are up by a healthier 2.4 per cent in the public sector, which economist Stephen Koukoulas attributes to union-negotiated enterprise bargaining agreements – and possibly some small wage pressure from growing head counts as the National Disability Insurance Scheme is rolled out.

Neither of these figures can be viewed in isolation, because both wage rates and the number of hours worked ultimately determine what’s in our pay packets.

Nonetheless, these figures are too low given the number of years the economy has had to recover from the global financial crisis.

Callam Pickering, economist for jobs site Indeed, says the return of above-inflation wage growth will be “gradual” at best and that “anyone hoping for a wage breakout will be disappointed”.

He argues that although state and federal governments are propping up final demand in the economy with infrastructure spending, the lack of flow-through to wages shows that more should have been done a few years back to get inflation and wages moving.

That is the overwhelming problem in the economy right now. With flat wages and rising borrowing costs, the household sector is in a painful financial squeeze.

And comments from the RBA in recent days, that “stress among mortgaged households remains relatively low”, aren’t terribly helpful.

While it’s true that we may not see family finances collapse altogether, if real wages aren’t growing and real borrowing costs are, there are fewer dollars left over to spend elsewhere.

This is precisely why both of the economists above, as well as Saul Eslake, John Hewson, economic modeller Janine Dixon and others are arguing that this is not the time to hand money back to corporate Australia through tax cuts.

The share buybacks and flow of windfall profits to overseas investors that Mr Hewson has warned will be the result of company tax cuts will not help household consumption figures, and therefore not help price and wage inflation escape their current stagnation.

By contrast, substantial personal income tax cuts in the May budget would flow straight through to the private sector, especially if targeted at the lower end of the income scale where there is a greater propensity to spend those extra dollars.

So while federal and state governments have pretty much done what the International Monetary Fund asked them to do a few years back – use infrastructure to stimulate the economy towards healthier growth – the federal government should seriously reconsider the tax cuts it is trying to get through the Senate.

Make them personal tax cuts, and we might get somewhere. Make them company tax cuts, and they’ll take so long to flow through to wages that they might as well not bother.

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