Have you heard the one about the treasurer predicting wage growth? | Greg Jericho | Opinion
OK, it’s not exactly a side splitter, but the latest wages growth data released by the ABS on Wednesday highlight that the wages predictions in the budget papers are fast becoming comical – and put into doubt the size of the projected budget surplus.
Annual wages for all workers in the March quarter of this year rose 2.1% – up from the record low of 1.9% a year ago, but show no improvement from the December quarter:
In trend terms, the March quarter marks the 13th straight quarter of private sector wages growing by less than 0.5%. Even public sector wages, which generally grow faster than the private sector, achieved a record low quarterly growth in March of 0.5%:
And while the pathetic wages growth is a major issue for Australian workers it is also an issue for the treasurer, given the budget papers predict much stronger wages growth in two and three years’ time.
Even before the latest figures were released, those predictions appeared to be rather on the optimistic side:
But even worse for the treasurer, the latest figures show that the budget’s prediction for wages growth in just one month’s time also look wrong.
The May budget predicted that annual wages growth by June this year would be 2.25%, and yet the current seasonally adjusted growth rate is just 2.07%.
This means that to reach 2.25% by June, wages in the next quarter will have to increase by 0.73% – a rate faster than which has been achieved in the past four years. It might happen, but it would be an extraordinary result:
If your predictions for wages growth just two months after the budget was handed down are overly optimistic, that doesn’t provide much hope that predictions for three years’ time will be any better.
The budget forecasts individual tax revenue in 2020-21 will grow by 7.2% and by 7.1% in 2021-22. Should it grow instead by just 6% in both years due to lower than excepted wages growth, that would cost the budget $2.8bn in 2020-21 and $5.6bn in 2021-22 – equivalent to a third of the projected budget surplus of $16.6bn in that year.
The latest data also shows the continuing breakdown in the relationship between unemployment and wages growth.
The current level of unemployment would have once seen wages growing by around 3.6% rather than the current 2.1%. The budget predicts wages growth will return to 3.5% growth even though it also predicts the unemployment rate will only fall from the current 5.6% to just 5.3%:
The main driver of wages growth in the March quarter was the education and training sector as wages historically rise the most in that sector in March due to the start of the new school year.
But the 0.8% quarterly growth for education and training was the lowest growth in a March quarter for that industry in more than a decade – and the industry’s annual growth rate of 2.4% is only marginally above the record low set a year ago of 2.3%:
The only semi-bright spot is that while workers are not receiving much improvement in their base rate of pay, those who receive bonuses are doing better.
In the past 12 months wages, including bonuses, grew by 2.7% – the biggest growth in nearly three years. But great care does need to be taken with these figures as they are unadjusted and are pretty erratic. While wages including bonuses are growing 0.6% points faster than the base rate, just 12 months ago they were growing 0.5% points slower:
At any rate, a shift towards paying wage rises through bonuses rather than the base right would be a rather worrying development given they are by their nature one-off payments that cannot be relied on.
And for five years now, Australian workers have not been able to rely on wages growing at a rate that has seen their living standards improve.
In the past 12 months, private sector wages grew at the same pace as inflation – meaning real wages during that period did not increase – marking five years during which real private-sector wages have effectively been flat:
The latest wage data shows barely any sign of wages growth improving. At least things don’t appear to be getting worse, but the rebound remains rather less than spectacular – and certainly below that predicted in the budget just one week ago.
- Greg Jericho is a Guardian Australia columnist