Why Australians are going backwards under Labor – and the last time workers had a pay rise that wasn’t eaten away by high inflation

Since Labor came to power 18 months ago, Australia has been denied a real wage increase due to high inflation.

By the time wage growth finally catches up with inflation in 2024, the average worker would have lost three years of losing their wages because they couldn’t keep up with the cost of living.

This is despite nominal wages rising 1.3 percent in the three months to September – the fastest quarterly increase since 1997.

A former Reserve Bank board member fears new industrial relations laws could keep inflation high, leading to more interest rate hikes as wage increases lag behind the consumer price index.

Treasurer Jim Chalmers and Employment Minister Tony Burke continue on about weak wage growth during the coalition’s nine years in power – despite workers not receiving an annual real pay increase since Labor won the May 2022 election.

“The Liberals and Nationals spent a decade in government deliberately keeping wages low,” they 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 minister under former Liberal prime ministers Tony Abbott, Malcolm Turnbull and Scott Morrison, workers actually enjoyed annual real wage increases.

That’s because inflation remained largely below 2 percent from late 2014 to late 2019, putting the consumer price index at the far end of the Reserve Bank’s target of 2 to 3 percent.

In 2023, the wage price index grew by a record 1.3 percent in the three months to September, marking the fastest quarterly growth since the Australian Bureau of Statistics began keeping data in 1997.

The annual increase of four percent was the highest since 2009.

But with consumer price index inflation at 5.4 percent, real wages actually fell by 1.4 percent over the year.

Australian inflation is the highest in the OECD after New Zealand.

This figure is in stark contrast to when the coalition was in power.

In the 2015-2016 financial year, wages rose by 2.1 percent, but with inflation at 1 percent, workers received a 1.1 percent real pay increase when Turnbull toppled Abbott.

Under the Abbott government in 2014, wages rose by 2.5 percent while the CPI fell by just 1.7 percent – ​​meaning workers got a real wage increase of 0.8 percent.

In 2019, under the Morrison government, wages rose by 2.2 percent, but with inflation of 1.8 percent this translated into a real wage increase of 0.4 percent.

Australian workers have not seen an annual real wage increase since March 2021 – a few months before Sydney went into lockdown – when wages rose 1.5 per cent while the CPI rose 1.1 per cent.

That meant a small real wage increase of 0.4 percent.

In 2022, with both Labor and the Coalition in power, Australian workers faced a 4.5 percent real wage cut as the wage price index of 3.3 percent lagged the 32-year high inflation rate of 7.8 percent.

Under the Coalition, real wages rose – albeit disappointingly – as inflation remained low even as the RBA cut cash rates during the pandemic from 2.5 per cent in February 2015 to a record low of 0.1 per cent in November 2020.

But under Labour, 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.

However, there was good news in the quarterly wage price index: the 1.3 percent increase in the three months to September exceeded the 1.2 percent increase in the CPI – meaning a real wage increase of 0.1 percent .

“While there will be some volatility in the quarterly data, the Treasury also expects annual real wages to return to growth in early 2024,” Dr Chalmers said.

Labor has also introduced the Closing Loopholes Bill, which would give workers and unions the power to use the Fair Work Commission to apply ‘same job, same pay’ rules to workers employed by a labor hire company if they have less than their colleagues receive. on an enterprise agreement.

“This year’s Loophole Closing Bill in Parliament aims to close the loopholes that undermine workers’ wages, conditions and safety,” said Dr Chalmers and Mr Burke.

But Warwick McKibbin, who was a Reserve Bank board member from 2001 to 2011, said labor laws were likely to make it even harder for employers to find workers, adding to inflationary pressures as a drop in productivity means customers have to pay more pay.

“Ironically, the government’s labor policy actually limits supply,” he told Ny Breaking Australia.

‘Equal work and equal pay policies actually reduce productivity – which makes it worse.’

Higher wages fueling higher inflation could lead to even more interest rate increases.

“You have to balance supply and demand, but if no one does that, then the central bank has to do that,” Professor McKibbin said.

Professor McKibbin, who is now director of the Center for Applied Macroeconomic Analysis at the Australian National University, expects three more rate hikes that would take the cash rate to 5.1 percent – a level not seen since December 2008.