The treasurer ignores the fact that the 2.8% growth in average wages he touted in question time is actually the third-worst annual growth rate since 1994

The treasurer ignores the fact that the 2.8% growth in average wages he touted in question time is actually the third-worst annual growth rate since 1994

L ast Thursday, during question time,

Joe Hockey was asked to “outline how the government is building jobs,

growth and opportunity and how will this assist all Australians.”

Bizarrely, he chose to respond by suggesting “there has been more good

news today” in reference “average weekly earnings”, despite Australians’ earnings growing by less now than they have for more than 20 years.

In delivering the “good news” Hockey told parliament that “the

average wage in Australia has now increased to $76,800 a year. It

increased by 2.8% this year”. He noted this meant the average wage for

Australians “works out at $1,476.30 a week”.

Firstly, Hockey got a bit confused. The 2.8% growth referred to the

original data, while the $1,476.30 referred to the trend data – which

only grew by 2.7%. He was referring to full-time employment only, not

the average earnings of all workers – that is just $1,128.90 a week.

But what is worse is the treasurer’s suggestion that these growth figures were in any way “good news”.

They were, in fact, terrible.

The 2.8% growth (or 2.7%, to use the trend data) was the third-worst

annual growth going back to 1994. And the worst result occurred in the

12 months to May 2014 which saw just 2.4% growth:







And had Hockey referred to the average growth earnings for all

workers, rather than just full-time workers, he would have been boasting

about the “good news” of just 1.3% annual growth – the lowest growth

since August 1999.


But rather than note this poor performance, Hockey instead argued that “with the higher wages comes greater prosperity”.

Now certainly higher wages does as a rule mean greater prosperity –

for generally it will mean there is stronger jobs growth and greater

demand for workers and thus, all in all, a stronger economy.

But right now, by his own definition, Hockey is presiding over the

worst period of rising prosperity this century in over 20 years!

Moreover, the weekly earnings figures that he refers to don’t

actually measure “wages” but “average earnings”. If you work for $15 an

hour and this week you worked five more hours than last week, your

earnings will have risen, but your wage would not.

To look at actual wages growth, the best measure is the ABS’s wages price index – as this attempts to look at actual increases in wage rates rather than earnings which may be affected by hours worked.

The latest figures were also released last week. The annual growth of

2.5% was the lowest since the ABS began calculating the rate in 1998:







If strong wages growth is good news, then Hockey best keep quiet.

To give an idea of how weak wages growth is at the moment, since 1998

quarterly wages growth in trend terms has only been below 0.7% six

times; three of those six times have occurred in the past three

quarters; and five of them have occurred in the past seven:







What is also important when looking at wages is how fast they are

growing compared with inflation. If they are rising faster than

inflation then “real wages” are growing – because it means you are able

to buy more things with your wages than you could a year ago.

Right now real wages are barely growing above inflation and they have

grown by less than the 0.7% along term average since March 2013. This

is important because while Hockey was bizarrely gloating about strong

wages growth, in Senate estimates

last week, senators Abetz and Bernardi were equally bizarrely trying to

suggest that proposed wage rises to public servants – which are well

below inflation – are actually generous.

Public sector wages growth in the past year was 2.7% – the equal

lowest on record. The growth of wages for public servants in the ACT – a

good proxy for commonwealth public servants – was just 1.4%, the second

lowest 12-month period ever (the lowest was recorded three months ago).







During the estimates hearings, Abetz and Bernardi worked with the new

public service commissioner, John Lloyd, to come up with some truly

idiotic short-term logic to calculate inflation and low pay offers for

commonwealth public servants, such as the 3.16% over three years rise offered to those working in the Department of Defence, the 0.8% annual pay rise offered to those working for the Australian Taxation Office, or the mere 1.4% rise over three years offered to those working for Abetz’s own Department of Employment.

Lloyd, who was appointed to the post in December

and who previously worked as a director for the rightwing Institute of

Public Affairs, is not someone you would say unions see eye-to-eye with,

but it was still disappointing to see him go along with the idiocy on

low wages served up to him by senators Bernardi and Abetz last Monday.

Bernardi and Abetz suggested that because the Reserve Bank was

estimating inflation to June this year would grow by just 1.25%, the

government’s policy that no public servant would receive a pay rise over

the next three years of above 1.5% would in some cases see wage rises

that “at least matches inflation” or even “exceed inflation”.

Bernardi even argued that a pay rise of “around 2% or 2.5% would be

substantially in excess of inflation”. “It would,” he argued, “be twice

the inflation rate.”

To this Lloyd replied, “Yes, a 2% increase, of course, is well ahead of inflation, yes.”

The problem for Bernardi, Lloyd and Abetz is that they only bothered

to look forward to the rate of inflation three months to June – ignoring

that three years is rather longer than three months.

Yes, the RBA did indeed predict in its latest Statement on Monetary Policy that inflation in June 2015 would be 1.25%, but a three years wage agreement goes out to the end of 2017 at least.

Conveniently for us, if not for Bernardi, Lloyd and Abetz, the RBA also estimated inflation out to December 2017.

It estimated inflation for both 2016 and 2017 to be between 2.25% and

3.25% – for a mid-point of 2.75%, which means Bernardi’s assertion that

wage rises of “around 2% or 2.5% would be substantially in excess of

inflation” or “twice the inflation rate” is complete crap.

The only reason inflation is so low right now is because in the past

six months petrol prices have fallen around 10%, and because the current

inflation rate includes the fall in power prices due to the removal of

the carbon price in the September 2014 quarter. But after September

2015, that impact will be gone from the annual growth figures – and it

actually has no current impact on quarterly growth.

Most economists expect inflation over the next few years to be below

3%. But suggesting a rise in wages of 1.25% over the next three years

will be in line with inflation is to live in a fantasy world. For a

start, the RBA would not let inflation remain so low for so long as it

is well below its target band of 2%-3%.

Hockey may truly believe that wage rises are good news. If so, I hope

he does something about increasing the current pathetic wage growth. In

the first instance he could have a word with his cabinet colleague and

point out that no matter how much you spin it, wage rises below the

inflation rate do not provide workers with “greater prosperity”.