The dumbest story on economic management I have read this year

This is the headline at The Oz: Wages growth risks sinking budget hopes. Over how many years did I see such headlines, and how many years did I spend trying to deal with the problem of wages growth? So I read through it all expecting to find an old story repeated, but found this instead:

Private sector wages are growing at the slowest rate in at least two decades, threatening both the ­Reserve Bank’s hopes consumers will power economic growth next year and the government’s budget that counts on rising personal ­income tax to narrow the deficit.

The average wage rise across the private sector over the past 12 months was only 2.1 per cent, just matching the underlying inflation rate, while public sector workers gained a 2.7 per cent rise.

The pace of private sector wage growth has fallen in the past year despite strong employment growth. Barclays chief economist Kieran Davies said that in the past wage increases of about 3 per cent had been associated with unemployment at the current level.

You do have to wonder some times. Employment growth has been good because of lower wages growth, not in spite of. But even that’s beside the point so far as all of this goes. The RBA now sees low wages growth as a problem because tax revenues will be lower than projected and higher wages are needed to increase demand. It’s even stupider than this because we then find this:

The public sector traditionally has had faster wage growth than the private sector. The wage price index, compiled by the Australian Bureau of Statistics, suggests some of the restraint shown early this year is being lost. In the 12 months to March, public sector wage increases were only 2.4 per cent.

The figures would not yet reflect the early decision of Malcolm Turnbull’s new Employment Minister Michaelia Cash to abandon the 1.5 per cent cap on wage increases that had been pushed by her predecessor Eric Abetz. The government has said it will allow agencies to negotiate enterprise agreements with increases of up to 2 per cent.

If I get the point, our new Employment Minister, so worried is she about falling tax revenues, has decided to lift the cap on public service wage increases! But it is these tax revenues that are used to pay our public servants. If you pay them more, you will have to raise even more taxes.

Am I missing something, or are they really this stupid?

As a footnote, I might mention that I discovered Say’s Law for myself when I had to formulate an argument on why higher wages would not stimulate demand. Now, apparently, an idea as economically illiterate as it is possible to be, is part of the thinking at the RBA. No punishment would be harsh enough for anyone with such beliefs.

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20 Responses to The dumbest story on economic management I have read this year

  1. Di says:

    My bloody favourites – the taxpayer funded activist & the public servant.

    There is a growing divide in this country, and I’m a bit over working all hours of the night & day to fund $270K teleprompter readers. It is outrageous!

  2. Louis Hissink says:

    I feel a serious Forrest Gump moment coming – stupid is as stupid does.

  3. Rabz says:

    No punishment would be harsh enough for anyone with such beliefs.

    They should be all given forced secondments to the ISIS treasury office.

  4. Jim says:

    Can someone explain why public servants are getting pay rises when most of them are pretty incompetent, faced no downward wage adjustment during the GFC (much of the private sector is still trying to catch up to 2009 wage levels), and the Government cannot afford it?

  5. Habib says:

    Am I missing something, or are they really this stupid? Unfortunately, not missing a thing. Not even Labor Lite any more, we’re effectively a one-party state.

  6. Pickles says:

    Can someone explain why public servants are getting pay rises when most of them are pretty incompetent, faced no downward wage adjustment during the GFC (much of the private sector is still trying to catch up to 2009 wage levels), and the Government cannot afford it?

    So they can attract the best and brightest?

  7. Art Vandelay says:

    The public sector traditionally has had faster wage growth than the private sector.

    That’s because their wages aren’t linked to productivity.

  8. Sydney Boy says:

    If I get the point, our new Employment Minister, so worried is she about falling tax revenues, has decided to lift the cap on public service wage increases! But it is these tax revenues that are used to pay our public servants. If you pay them more, you will have to raise even more taxes.

    OMFG. The stupid. It burns.

  9. Des Deskperson says:

    ‘The government has said it will allow agencies to negotiate enterprise agreements with increases of up to 2 per cent.’

    Not quite the full story. The government has given agencies the flexibility to offer wage increases averaging up to 2 per cent per annum but, as the media release makes clear, “with costs to be met within existing budgets.”

    In other words, if an individual agency needs to attract and retain particular skills and capabilities, then it can go up to 2% provided it finds offsets from somewhere else within its financial allocation.

    It’s interesting to note, however, that on a service wide basis the APS doesn’t currently seem to have much need for incentives to attract and retain staff. Recruitment of ongoing staff was down 49.4 % in 2014-15, while separations were down 6.2%. Individual agencies may, of course, have a different perspective.

  10. Rayvic says:

    “Am I missing something, or are they really this stupid?”

    Again, they are preoccupied with revenue raising, having lost sight of the more pressing need to reduce costs — thanks to the Labor-like groupthink.

  11. Trish says:

    Take heart, Steve, someone out there is getting it right:

    Employment is growing strongly in part because wage growth is weak.

    Guess who?

  12. Boambee John says:

    Yes, they really are that stupid!

  13. Mr Rusty says:

    This is just the Government laying the groundwork for their version of Swannie’s “the GFC / end of mining boom ate our revenues”.
    Clearly they’ve got some estimates from Treasury coming in that shows we’re so far deep in the red nobody could tell if we were blushing.
    So the narrative starts to be spun. Can’t blame mining or China, The Goose took those so lets…ummm…blame da evil corporations cos they haven’t lifted wages! Yeah! What a winner! Oh, it’s not da Gubbermints fault either, we lifted our wage hike restrictions so why can’t the private sector raise their wages? I mean it’s not as if they’re paying a bucket load of taxes to pay for the public sector and their endless wage demands is it?
    Oh wait, yes it is.
    So there we have it. The excuse next year will be “Well your employers haven’t been raising your wages which we can then take off you to pay for our spending blowouts so we’ve had an even bigger spending blowout which we will cover by raising GST which will go to the States anyway but we’ll increase handouts to compensate the mendicants who pay no taxes anyway and buy all their stuff with other people’s money. Oh and it’s all the fault of the rich and the corporations.”

  14. Grumpy says:

    Employment growth has been good because of lower wages growth, not in spite of.

    You shouldn’t always believe what journalists write. May I suggest you actually read the RBA directly here: “This low wage growth may have encouraged firms to employ more people than would otherwise have been the case.”

    The RBA now sees low wages growth as a problem because tax revenues will be lower than projected and higher wages are needed to increase demand.

    Really? The RBA said that? Where?

  15. Des Deskperson says:

    ‘That’s because their wages aren’t linked to productivity.’

    In the APS, improvements in productivity is one of the factors, under the Bargaining Framework, that has to be taken into account in considering wage increases.

    Productivity improvements are, of course, difficult to measure in any large bureaucracy and they often come down to minor shortcuts and improvements in administrative processes. Still, better than most Labor governed jurisdictions, where productivity improvements don’t need to be demonstrated.

  16. Grumpy says:

    Also, wages in the APS have effectively been frozen for the past 18 months. Not only that, but a CPSU survey implies that the majority of its members will vote against the latest pay offer. If that happens, wages will stay frozen even longer. lol!

  17. Jeremy says:

    A thought – How about no pay rises for public servants until independent analysis shows that public servants are leaving at a rate 20% higher than the historical norm. In this way we can establish a genuine ‘clearance’ rate for public servants and pay them appropriately!

  18. wreckage says:

    In other words, if an individual agency needs to attract and retain particular skills and capabilities, then it can go up to 2% provided it finds offsets from somewhere else within its financial allocation.

    BEGONE VILE FACTS, AND DO NOT RETURN!

  19. Yohan says:

    Yes I laughed at the part about the government removing the cap on public sector wage increases. Every economic fallacy of 100 years ago is still being implemented today by our politicians.

    Productivity growth too low? Just force up wage rates. Especially un-productive public sector wages.
    After all, the source of higher wages is higher wages, geddit !!

  20. candy says:

    Public servants are the elite of workers and will vote for Malcolm Turnbull as he keeps them in clover.

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