Don't expect a good pay rise for years, warns RBA   

August 9, 2019
Sydney Morning Herald


Australians are likely to wait more than three years for a decent pay rise, the Reserve Bank has warned while challenging state and federal governments to end their caps on public sector wages and engage in sweeping tax reform.

Unveiling fresh economic forecasts that are substantially at odds with those underpinning the federal budget, RBA governor Philip Lowe used an at-times challenging appearance before the House of Representatives' economics committee to complain that limits on public sector pay rises were in effect "cementing" in place poor wage outcomes for the entire nation.


RBA governor Philip Lowe has called on state and federal governments to give their workers a pay rise while revealing wages are unlikely to rise substantially for several more years.

Markets expect the RBA will continue to slice official interest rates to 0.5 per cent by early next year, in part to drive down the unemployment rate and push up wages.

Dr Lowe said a major impediment to higher wages was the action of governments which, over a number of years, had sought to cap pay rises for the public sector, which accounts for up to a third of the nation's workforce.


Wage caps of 2.5 per cent or lower are common across almost every state and territory while the federal government has had a 2 per cent cap for several years.

"Wage caps in the public sector are cementing low wage norms across the country. The norm is 2 to 2.5 per cent and that is partly because of the decisions taken by state governments," he said.


"Caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes.

"My view is that a further pick-up in wages growth is both affordable and desirable."

Dr Lowe said while he could understand why many governments sought to repair their budgets by limiting pay rises, the longer it went on, the more substantial economic impact they were inflicting.

He said he wanted pay rises with a "3" in front of them, suggesting a rate of 3.5 per cent should be a target.

    Wage caps in the public sector are cementing low wage norms across the country.

The RBA now believes overall wages will grow by just 2.3 per cent over the next 12 months before barely edging up to 2.4 per cent by the end of 2021.

A downgrade from its most recent forecasts, the RBA's predictions are well short of the federal Treasury, which in the April budget forecast wage growth of 3.5 per cent through 2021-22.

Unions moved quickly to back the governor's comments, with ACTU secretary Sally McManus accusing state and federal governments of deliberately keeping wages low and causing "desperation" for many Australians.   

"The Reserve Bank governor testified to parliament today that the government's own position on the pay of people working for it is keeping wages down for everyone," she said.

Dr Lowe, who said one of the largest risks to the economy was the ongoing trade war between the United States and China, argued that apart from low interest rates, the country had to look at increased infrastructure spending and "productivity-enhancing" structural reforms.

He said an overhaul of the way land was taxed in the country, new competition policies, a revamp of taxes on consumption and innovation plus an investment in skills could all boost productivity across the economy.

Without such changes, the nation faced falling wages and a drop in the value of important assets while government budgets would also suffer.

"That's the most important challenge that we face," he said.

In its quarterly outlook on the economy, the RBA downgraded its key forecasts, with the economy now expected to grow 2.5 per cent through this year while the jobless rate is not forecast to slip below 5 per cent until the end of 2021.

Markets expect the RBA to cut official rates twice over the next six months with Dr Lowe not ruling out the official cash rate falling to zero if the global and domestic economy deteriorate.

ANZ's head of Australian economics, David Blank, said the RBA's downgraded forecasts suggested it should have considered a rate cut at its meeting this week rather than hold for another month or two.

"We think another rate cut this year is inevitable," he said.

The article is not true. The remuneration of government workers is rising faster than rates for non-government workers.

There is a widespread perception in the community that government workers are low productivity and 90% of them would never leave their jobs for a private industry job which means that eventually, the public service accumulates the dregs of the workforce.

Laugh till you cry wrote on Aug 10^th, 2019 at 8:37am:


There have been caps on public service wage increases since the Liberals took power. This is an undeniable documented fact.

Any widespread perception is a false beat up driven by the right unless you are referring to upper management where both accusations may well be correct.

Dnarever wrote on Aug 10^th, 2019 at 10:15am:


Caps on the middle ranks while the top and bottom enjoy boom times.

Bam wrote on Aug 10^th, 2019 at 11:55am:


How true.....

Laugh till you cry wrote on Aug 10^th, 2019 at 8:37am:


and yet they still oursource a lot of their work to private consultants like deloitte, ernst and young, KPMG etc