Wages growth like it’s 2013: RBA says a long grind for fatter pay packets
Wages will have to grow at their fastest rate since Julia Gillard was prime minister before inflation is high enough for the Reserve Bank to consider an interest rate rise, even as businesses grow more confident about their financial future.
Minutes of the RBA’s April meeting, at which it held the official cash rate at 0.1 per cent, confirm it remains concerned about sluggish wages growth and how it will affect monetary policy in the coming years.
The Reserve Bank says wages growth will have to be “sustainably” above 3 per cent before inflation will get back to the RBA’s target band.Credit:Louie Douvis
Wages growth slumped to its slowest rate on record last year at just 1.2 per cent. The federal government, along with many state governments, froze public sector wages last year while many private firms also held wages for their staff.
The Fair Work Commission increased the minimum wage by 1.75 per cent last year and is under pressure from business groups for either a freeze or another small lift this year.
But the RBA’s minutes show the central bank believes wages have to grow at “sustainably above 3 per cent” if inflation is to get back to its target of 2 to 3 per cent. The last time wages grew so quickly was in early 2013.
The minutes show the RBA believes the overall Australian economy is recovering well from the coronavirus pandemic, with total GDP back to its pre-COVID level. While jobs growth was strong, Australian wages growth was not.
“Despite the rapid recovery in employment in Australia, members noted that wages growth domestically had slowed to a greater extent and had been more subdued than in other countries,” the minutes showed.
“The labour market adjustment in Australia in response to the pandemic had principally taken the form of adjustment to hours worked and widespread wage restraint.
“In contrast, in some other countries, including the United States, the adjustment had mainly been through a decline in employment.”
Unemployment fell to 5.6 per cent in March, just before the federal government’s JobKeeper wage subsidy program ended, to be much lower than had been feared by Treasury and private-sector economists. Job ads have also been around their highest levels since the immediate wake of the global financial crisis.
The minutes show the bank is still uncertain about the impact of the end of JobKeeper on the jobs market and believes the lift in job ads is partly due to firms rehiring staff lost during the depths of the pandemic.
A survey of mid-sized businesses by KPMG shows they appear much more upbeat about their future but are resistant to any tax increases to help cover the huge amount of government support that cushioned the economic impact of the coronavirus recession.
It found about 68 per cent of businesses had either used government support and were now “emerging with confidence” or saw new opportunities because of the past year’s turmoil.
Cost pressures and reduced demand were the two biggest challenges arising out of the pandemic, with more than half saying they will have returned to “business as usual” within six months.
Asked how to cover the increase in government debt, which has reached a record $836.7 billion, 71 per cent of businesses said productivity levels should increase to boost overall revenues. Two in five businesses backed an increase in the GST while 38 per cent supported a cut in spending.
“While nobody wants tax rises, it is clear that if there has to be one, then GST was the option chosen by respondents,” KPMG enterprise national tax leader Clive Bird said. “This is difficult territory but there is a clear business view that tax reform is needed and we need to move away from Australia’s over-reliance on direct taxes.”
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