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.