October 15, 2024

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Stagnant wages drag down the economy

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It’s not only union officials who are worried about persistent low wage growth.

Australia has a new economic problem: profits are surging but wages are stagnant or barely keeping pace with living costs.

Last year, company profits grew by 22 per cent – the second fastest annual growth in the past 30 years.

However, total wages and salaries grew by just 1.4 per cent – the slowest growth outside of a recession or the Global Financial Crisis.

The average Australian household now has less disposable income in real terms than when the Liberal/National Coalition took power in 2013, The Guardian newspaper reports.

The major reason, it says, is persistent low wages growth.

“In a period where the cost of living for essential items such as energy and health have skyrocketed, workers’ wages have grown at record low levels,” The Guardian said.

“It is an issue that sees households, despite living in a country in its 26th year without a recession, with a living standard no better than seven years ago.”

Wages in Australia traditionally grew in line with the strength of the overall economy.

That relationship saw wages rise from 1998 through to the end of 2012 at an average of around 3.5 per cent each year.

That amounted to a 1 per cent annual increase in real wages, after taking inflation into account.

However, as The Guardian noted, Australia has not seen average wages growth of 3.5 per cent since September 2012 – “and worse, no one thinks we will see it for a very long time yet”.

Low wage growth leads to other economic problems

A Sydney Morning Herald editorial last month described a lack of wage growth at a time when businesses are doing well as “the main problem currently exercising the minds of economists and
central bankers”.

Even Reserve Bank governor Philip Lowe has said higher wages would benefit the whole economy.

He talked of low wage growth as a “crisis” and said he hoped relatively low unemployment would re-energise workers to demand higher wages.

“At some point, one imagines that’s going to lead to workers being prepared to ask for larger wage rises,” he said. “If that were to happen it would be a good thing.”

Mr Lowe said low wages growth was now a “distinguishing feature” of the Australian economy and at the heart of many of the problems the Reserve Bank was currently grappling with, including a boom in house prices and dangerous, record debt levels.

“Low growth in wages means low inflation, which means low interest rates, which means high asset valuations.”

He said low wages were also hurting many businesses by depressing consumer confidence.

Companies had shown a “laser-like focus on containing costs” by holding down wages and cutting allowances.

Australia needs a pay rise. Even the International Monetary Fund agrees

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The Federal Court decision to uphold cuts to penalty rates for 700,000 low-paid workers is more evidence that the rules aren’t working for working people, but are working very well for business.

The Federal Court has rejected an appeal by unions to overturn cuts to penalty rates in the hospitality and retail sectors brought in by the Fair Work Commission. The cuts – between 25 per cent and 50 per cent – have been in place since 1 July.

The ACTU, unions and the ALP condemned the decision.

“(The Court’s decision) shows that the laws in this country do not protect workers and are out of step with community values. Those laws have to change,” said Joanne Schofield, national secretary of United Voice, the union that represents hospitality workers.

“We fear that employer groups will now continue to attempt to attack the weekend pay of workers in other industries.”

ACTU Secretary Sally McManus said the Turnbull government should intervene and “act in the interests of working people”.

“Malcolm Turnbull can stop these wage cuts. Australia needs a pay rise. Working people’s wages are flatlining and their work is becoming more insecure. The government has a responsibility to act,” she said.

“Unions are fighting for workers’ rights: it’s a shame that the Turnbull government won’t lift a finger to help working people.”

IMF urges greater government role in IR

A report by the International Monetary Fund (IMF) – released days after the Federal Court decision – heralds a radical change in economic thinking by a prominent global institution that is at odds with policies of the Turnbull government.

The IMF report recognises that the major problem facing all major advanced economies, including Australia, is low wage growth. Crucially, the IMF says to fix this problem governments need to take a much greater role in industrial relations.

It says governments need to protect and extend minimum wages and, in an era of highly flexible employment with increasing levels of part-time work, governments need to offer “prorated annual, family, and sick leave (for part-time workers) to secure parity with full-time workers”.

Economics commentator Greg Jericho says the IMF recommendations “sets the recent decision by the
Fair Work Commission to cut penalty rates in awards covering the hospitality and retail sectors as a rather backward step”.

“In an era where governments are struggling to work out how to increase wages growth, the biggest recent policy shift in our IR system has been to cut wages,” he said.

Unions are critical for better wages

ACTU Secretary Sally McManus says if inequality is to be addressed in  Australia workers need better and stronger rights at work.

“Industrial laws have always existed with one primary purpose: to address the inherent power imbalance that exists between capital and labour. That imbalance has never been greater. Our laws need to change to do their job,” she said.

McManus says that unions are essential to keeping inequality in check.

“The laws that make the job of unions harder must be addressed. It is in the interests of all Australians that we have a strong union movement. We have the harshest laws in the OECD against unions. The union bashing must stop.

“Every other country in the OECD finds ways to support their unions. In Australia we need to build that recognition and develop the supports so unions are able to lift wages and improve our economy. This is the new deal we need.”

Why we need to change the rules

The ACTU argues that employers have found ways to exploit the rules around enterprise bargaining in order to avoid paying fair wages and conditions.

Enterprise-based bargaining was meant to deliver increased wages for increased productivity. This has stopped happening since 2000.

Even more alarmingly, it says, there has been an increase in the number of workers on minimum award rates, which has shot up from 15.2 per cent in 2010 to 23.9 per cent in 2016.

Many of these workers are on or around the minimum wage – around $36,000 a year.

Building stronger rights for workers

The ACTU says we need important changes to our industrial laws to address the power imbalance between employers and workers. These changes would:

  • Create more secure jobs by taking away the incentives to casualise work
  • Restore a strong, fair and independent industrial umpire
  • Ensure a level playing field for bargaining
  • Rebuild a relevant, modern and strong safety net for all workers
  • Put an end to union-bashing.

IMF: tax the rich to reduce inequality

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In its half-yearly financial report, the International Monetary Fund said taxing the super-rich would help reduce inequality without having an adverse impact on growth.

What is good for the super-rich is not so good for the rest of us, the IMF has concluded in a significant report that
challenges decades of neo-liberal economic policies.

The IMF rejected the argument that economic growth would suffer if governments in advanced countries forced the top 1 per cent of earners to pay more tax.

Responding to the argument that putting “significantly higher” tax rates on high incomes would be bad for growth the IMF said: “Empirical evidence does not support this argument”.

The head of the IMF’s fiscal affairs unit, Vitor Gaspar, said the average top income tax rate for the rich country members of the OECD (including Australia) had fallen from 62 per cent in 1981 to 35 per cent in 2015.

He said there was scope for more progressive systems to tax the rich at higher rates in an effort to redistribute income to those who are less well off.

“Importantly we find that some advanced economies can increase progressivity without hampering growth,” he said.

“While some inequality is inevitable in a market-based economic system, excessive inequality can erode social cohesion, lead to political polarisation, and ultimately lower economic growth.”

Investment in health also reduces inequality

The IMF said inequality should also be tackled by giving a more pro-poor slant to public spending.

“Despite progress, gaps in access to quality education and healthcare services between different income groups in the population remain in many countries,” it said.

“Investments in education and health help reduce income inequality over the medium term, address persistent poverty across generations, enhance social mobility, and ultimately promote sustainable and inclusive growth.

“Better public spending can help, for instance, by reallocating education or health spending from the rich to the poor while keeping total public education or health spending unchanged.”

ACTU calls for end to corporate tax cuts

The ACTU said the IMF report highlighted the failure of trickle-down economics.

“The Turnbull government’s policies of cutting taxes for the very wealthy and big business are making inequality worse. The IMF report shows that this approach has failed,” said ACTU Secretary Sally McManus.

“The rich have not put limits on their greed and given wage increases and good steady jobs back to everyone else. We now have record low-wage growth, inequality at a 70-year high and 40 per cent of Australians are in insecure work.

“We need corporations and the already rich to actually pay tax.”

Australia’s tax rules aren’t working

In 2014–15 the top 10 companies in Australia that paid no tax at all had combined revenue of $33 billion.

In a single year between these 10 companies we have lost more than $660 million in taxes.

On top of this the Tax Office is currently suing American oil and gas giant Chevron for more than $1 billion in unpaid taxes dating back to 2012.

In 2014–15, 48 Australian millionaires paid no tax – not even the Medicare levy. Nineteen spent over $1 million each on lawyers and accountants to “manage their tax affairs”.

And now the government wants to give more special treatment to business with an extra $65 billion tax cut. This corporate handout would reduce the tax rate from 30 per cent to 25 per cent.

The Commonwealth Bank stands to benefit by $1 billion. Our biggest miners BHP, Rio Tinto and Woodside will share in $1.8 billion. Coles and Woolworths will share in $281 million.

Read more about the IMF’s take on tackling inequality:

http://www.imf.org/en/News/Articles/2017/10/10/sp101117-opening-remarks-of-vitor-gaspar-at-the-fall-2017-fiscal-monitor-press-conference

 

Enough is enough

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Nurses and midwives have staged big rallies at Blacktown and John Hunter hospitals against chronic staffing shortages. These are powerful messages that the Berejiklian government must listen to.

Nurses and midwives have always been very cautious about taking action at their workplaces unless there are serious reasons for doing so.

Last month over 100 nurses and midwives at Blacktown and this month another 200 at John Hunter Hospital in Newcastle rallied outside their facilities when long-simmering frustrations with local management boiled over.

After the Association insisted on access to rosters and other staffing information at John Hunter our analysis of the data revealed that the hospital had been understaffed by a staggering 7000 hours below minimum requirements over a seven-month period. Belmont Hospital was also well below the minimum staffing requirements.

It is little wonder that management’s failure to address this chronic understaffing has led to a rebellion. Enough is enough.

It is not only nurses and midwives who are unhappy. A Newcastle Herald editorial articulated the community anger at the shortchanging of so many hours of nursing care. And the paper was perceptive in pointing out the risk
of losing experienced nurses and the “scars” that could leave on the local health system.

The NSW Industrial Relations Commission weighed in too, with a scathing assessment of Belmont Hospital management’s failure to meet the legal award requirement of nursing hours.

Commissioner Stanton pointed out that “if it (had been) on the front page of The Newcastle Herald and The Sydney Morning Herald” the Saturday before then management would have already solved the problem.

He handed out strong recommendations for the full replacement of absences and made it clear those replacements should be like-for-like.

Blacktown and John Hunter hospitals are not spot fires. They are more like the canary in the coal mine. The Association is getting reports of the same pressures throughout the state and through-out the public health system.

The Berijiklian government and NSW Health must heed these warnings and listen to those at the frontline who understand the problems and the solutions.

Ratios are central to resolving this issue in the long term. They must be updated, expanded and improved in parallel with the increasing demands on the public health system.

We await a government savvy enough to realise this: one that will overcome the neglect and act with the courage and will necessary to keep our public health system world class.

The rules must change

The ACTU and unions have been campaigning to “change the rules” in Australia. This means better and stronger workplace protections that would allow workers to push for well deserved pay increases. It also means corporations and rich individuals paying their fair share of tax.

Last month we found an unlikely ally. The International Monetary Fund (IMF) – for decades a key global driver of neoliberal economics – had a significant change of heart when it named inequality in developed nations
as a key challenge of our time (see pp 16-17).

The IMF explicitly recognised low wage growth as the major problem facing all major advanced economies. This echoes calls that the Australian union movement has been making for some time.

Even the Treasurer Scott Morrison has admitted that low wage growth is inhibiting the Australian economy as has the head of the Treasury John Fraser.

Also, if we are serious about tackling inequality, the IMF says, then the rich must pay more tax. It demolished the argument that making them do so would have a negative impact on economic growth.

Interestingly, the IMF said more investment in health and education would “reduce income inequality over the medium term, address persistent poverty over generations, enhance social mobility and ultimately promote sustainable and inclusive growth”.

All of which makes the policies of the Turnbull government, with its support for cuts in penalty rates and its relentless slashing of health and education budgets, unfathomable and unconscionable. ■

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