Australian Council of Trade Unions secretary Sally McManus insisted that pay rises should match inflation: “Working people cannot continue to see real pay cuts after a decade of record low wage growth,” she said.
Annual headline inflation is running at 5.1 per cent, and is expected to rise to 7 per cent by the year’s end, meaning wages would need to increase significantly.
Ms McManus said wage claims were always considered in the context of cost of living increases and broader economic conditions.
Last week, the Fair Work Commission delivered a rare split increase that lifted the minimum wage by 5.2 per cent for 184,000 workers and by 4.6 per cent for about 2.6 million workers on higher awards.
On Tuesday, Dr Lowe sought to put a lid on wage growth of about 3.5 per cent and warned that regular pay rises of above that risked entrenching higher inflation and forcing the RBA to go harder on interest rates.
He flagged the need for real wage cuts, saying annual rises in the mid-threes were a good “anchoring point” for employers and unions.
Peter Tulip, chief economist at the free-market Center of Independent Studies, said wages growth of 4.6 per cent – as granted to about 2.6 million award workers – supported inflation above the RBA’s target band.
“To combat that, the RBA will increase interest rates and increase unemployment so as to return inflation to the target range,” he said. “An alternative of nominal wage restraint will give us less unemployment.”
Last week, Mr Burke said the advice to him that wages could rise by inflation plus productivity and “as long as you don’t go beyond those two combined, you’re not having an inflationary impact”.
On Wednesday, he criticized the media coverage of Dr Lowe’s comments as a “misreading” of what was said, but moderated his language.
Directly responding to the RBA governor’s comments, he said: “They were a warning that everybody needs to be aware of — that we want inflation to get back within the target band of 2 per cent to 3 per cent.”
He also linked his past comments to Dr Lowe’s position that pays rises of inflation at the middle of the 2 to 3 per cent target band plus productivity growth of 1 per cent was where things needed to move.
But with wages growth running at just 2.4 per cent in the year to March 31, Mr Burke said there was plenty of room for improvement.
“The comments on Wednesday from the governor of the Reserve Bank are still calling for wages to get moving beyond where they have been. The 3.5 per cent he referred to is still a significant improvement on where things have been.
“That is a far cry from what Australian workers have been dealing with – the wage price index running at 2.4 per cent.”
Dr Lowe said inflation would remain above the target band for “years” and the RBA would do “what is necessary to pull it down”. “If wage increases become common in the 4 to 5 per cent range, then it is going to be harder to return inflation to 2.5 per cent,” he said in a speech to the American Chamber of Commerce in Australia on Tuesday.
And while pay rises above 3.5 per cent “for a short period of time” were possible, he warned that a wage price spiral would force aggressive rate rises that would slow the economy and push unemployment higher.
However the bank’s credibility to achieve its objective is, being debated.
Australia’s 10-year bond rate yields 4.05 per cent compared with the US rate of 3.25 per cent – a gap that has blown out in recent months – and financial markets expect the local cash rate to peak above 4 per cent compared with 3.3 per cent in the US. This suggests global investors are not confident that the RBA will bring inflation to heel quickly.
Damage to RBA’s reputation
This week, the central bank conceded that the disorderly end of its yield curve control policy in November last year had triggered market volatility and dislocation, damage to its reputation.
The Albanese government is also being pressured to develop a proper wages policy to provide guidance and certainty to employers, and help anchor inflation expectations to support the RBA’s inflation task.
Finance Sector Union national secretary Julia Angrisano, whose union is seeking 6 per cent a year increases for workers at Westpac and National Australia Bank, said surging profits in the finance sector justified larger pays in the coming years.
“The last decade has seen low wage growth with the salaries of massive workers in the financial services sector falling behind when compared to the profits being generated by banks and financial institutions,” she said.
“This disconnect needs to be addressed. In a balanced economy, workers and employers should benefit from growth. Profits and wages should both be expected to increase.”
Mr Tulip said it was disappointing that the labor movement had not learned the lesson of the early 1980s and the prices and incomes accord struck between then prime minister Bob Hawke and the ACTU.
Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry, said the RBA governor’s comments were consistent with what many businesses were seeking in wages growth.
“We would say wage earnings of around 3 per cent are appropriate, that the key thing is that we need to avoid the risk of feeding into inflation, which is fast becoming the number one economic risk for the Australian economy.
“Of course, people deserve a pay rise, but we’ve got to be careful not feed back into the inflation cycle.”