PM’s “real” wages boast has interest rate bite

The RBA decision to leave interest rates alone this month is unsurprising according to the Australian Institute for Progress as a cash rate at 3.6% is on the looser side of monetary policy, based on historical interest rates.

Executive Director Graham Young said that Australia has reverted to a state reminiscent of the stagflation of the 70s, disguised by record rates of immigration.

“Almost every government policy is conspiring to push interest rates higher at the same time as individual disposable incomes are deteriorating.

“There never was a strong case for cash rate cuts, given that the historical average is somewhere between 4 and 6 per cent, unless the economy was weak.

“What we face at the moment is indeed a weak economy for individuals, but one where cost pressures and out of control immigration are causing prices rises.”

Mr Young said that the Prime Minister’s boast that real wages have increased is based on wage increases in the public sector, and the publicly-funded sectors like childcare, health and the NDIS.

“These ‘real’ wage increases are not widespread, and they are not supportable in the long run without an increase in productivity, yet the latest figures show Australia with negative productivity growth and at the bottom of the OECD class, just above Mexico.

“One of the clues to this low productivity growth is a capital strike caused by the federal government’s anti-business policies, including the reunionisation of some of the most capital-intensive parts of the economy.

“Another cause is the price of electricity. In the 70s it was the Arab oil embargo that precipitated the stagflation, in the 2020s it is the price of another form of energy – electricity.

“Investment in the type of capital-intensive industries that can build overall productivity cannot be justified when the thing that supports investment and high wages – cheap energy – disappears.”

Mr Young said the government’s approach is more likely to cause inflation than fix it, at the same time as it can only produce an illusion of a real increase in living standards as prices chase higher wages up an inflationary spiral.

“If the government doesn’t wise-up and reverse its anti-business and anti-competitive policies, interest rates are more likely to trend higher rather than lower.”

For further information contact Graham Young on 0411 104 801 or graham.young@aip.asn.au.