Australian Institute of Company Directors warns surplus will be delayed if optimistic growth not achieved • Sign up to receive the top stories every morning

This article is more than 2 years old

This article is more than 2 years old

The Australian Institute of Company Directors has described the wage growth forecasts in the budget as “pretty heroic” and warned the government’s surplus will be delayed if they’re not achieved.

Last week’s budget made optimistic forecasts about the growth of wages for Australian workers, forecasting a 3.25% increase in 2019-20, up from the current rate of 2%.

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Wage growth is hovering at near-record lows in Australia following successive drops in the wage price index from mid-2012 until last year. Stagnant wages have been experienced across the developed world, including until early this year in both the US and the UK.

Speaking on ABC’s Q&A program on Monday, the chairman of the Australian Institute of Company Directors, Elizabeth Proust, said it was hard to see how Treasury had come up with such optimistic figures.

ABC Q&A (@QandA) Can we really trust the wage growth assertions made in budgets? Our #QandA panel responds pic.twitter.com/fC5DfLCtwx

“It is hard to see where that level of wage growth is going to come from in the next few years,” she said.

“They’re Treasury figures, but they’re pretty heroic. I’d like to think in three or four years time that will be the level of wage growth that we’re seeing, but we’re not seeing it now.”

Quick guide 2018 budget at a glance Show Hide • Tax cuts for middle low and middle income earners with most saving between $200 and $530 a year on their tax bill through a tax offset • Ambition for a flat tax rate by 2024 of 32.5% for everyone earning between $41,000 and $200,000 • $4.5bn earmarked for roads, but major public transport projects will have to wait years for the lion's share of funding announced in the budget. $24.5 billion has been directed to new commitments, but only $4bn of that is being spent in the next four years • The controversial robodebt electronic debt recovery is to continue • Newly arrived migrants will have to wait another year to receive welfare assistance, while refugees will see their wait for Newstart doubled to 26 weeks • Superannuation funds to be banned from charging exit fees and fees for accounts under $3,000 will be limited to 3% • ABC to have its funding cut by $83.7 million over three years. Meanwhile a Captain Cook statue in Scott Morrison’s electorate is to be built at a cost of $25m • ‘Black’ economy is under the spotlight with government planning to claw back revenue it is losing to illegal tobacco. Home Affairs estimates it can earn $3.6 billion from a crackdown • Pensioners will be able to earn an additional $25 a week without reducing their pension. The pension loan scheme is also being expanded, which allows pensioners to use their homes as equity to boost their retirement incomes • $1.6bn is being spent to support an additional 14,000 additional high-level home care packages. A further $82.5m is being spent on mental health services for older Australians, including a $20m “loneliness” package, to help people “remain connected to their communities”. • New measures to help crack down on multinationals avoiding tax commitments. The government is also moving to add to previously announced measures to make sure income earned in Australia, can be taxed by Australia.

Proust warned the consequences of not achieving such wage growth were significant. It would put at risk the budget’s estimate of a surplus, she said.

Economist Judith Sloan, a columnist for News Corp, agreed the wage forecasts were optimistic. But she said there was a chance a tighter labour market could cause a rapid change.

“Look I think they are on the optimistic side, but in the circles I move, the labour market is pretty tight,” she said. “So really it’s about employers being out because they’re going to find it hard to find workers, so it could pretty switch around reasonably quickly.”

The law enforcement minister, Angus Taylor, said the government’s tax reforms were crucial to ensuring the predicted wages growth was realised. He said business investment would yield wage growth, and also expressed optimism that labour market conditions were conducive.

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“We saw Australia with very strong wages growth through the mining boom because we had a lot of business investment. We’ve got to have that business investment happening,” Taylor said. “That will yield rising wages. The job market is tight. I think the conditions are there for increases in real wages.”

The shadow treasurer, Chris Bowen, said Labor would trust the Parliamentary Budget Office, not Treasury, to make such forecasts. He said that would ensure there was complete independence from government.

“Wages is the big one that is very optimistic, and has a big impact on the projected budget surplus, no doubt about it,” Bowen said. “We all hope it’s true, but it’s a huge risk.”

ABC Q&A (@QandA) .@Bowenchris says they have the courage to take tax reform to the voters. @AngusTaylorMP says tax reform changes behaviour #QandA pic.twitter.com/IcxkfOzxY1

Q&A was dominated by discussion of the budget, particularly the government’s centrepiece tax reforms.

The Australia Institute’s executive director, Ben Oquist, said the planned flattening of the tax system was inherently unfair and would reduce progressiveness. He said the institute’s modelling suggested it would deliver 62% of the benefits to the top 20% of income earners, and favour men over women. Oquist played down the severity of the bracket creep that the tax plan was intended to address.

“We’ve got low inflation, we’ve got low wages growth. Yet we’ve come in with this big tax plan, $140bn to address bracket creep, that makes the tax system unfairer,” he said.

Proust agreed the longer-term tax plan was marginally unfair.