At the start of the Albanian government’s honeymoon, much was said about the reinstatement of a representative of the Australian Council of Trade Unions to the board of the Reserve Bank. It makes sense. Salaries are important in a time of returning inflation, and the board would benefit from the advice of someone who has experience in the labor market and is familiar with salary regulations.
The new Labor government should also consider pursuing a new, modern version of the Prices and Incomes Agreement. This was an agreement between the ACTU and the Hawke-Keating Labor government in the 1980s which allowed wage moderation, to avoid a wage-price spiral or “stagflation”, by offering benefits of ” social wage” to workers such as health insurance, retirement pensions and taxes. reform. This made it possible to increase the standard of living while controlling inflation. At the same time, unemployment fell.
Having the architect of the Accord, ACTU Secretary Bill Kelty, on the RBA board in the 1980s kept the bank informed of pay developments and how the Accord would help reduce both inflation and unemployment. This allowed the bank to support sustainable wage growth without fueling inflation.
Salaries are a key issue right now. We saw concerns about them during the election campaign, when Anthony Albanese approved a 5.1% increase in the minimum wage, wrong-footing Scott Morrison and handing him the keys to the Lodge. In one of the first major economic decisions by the Albanian government, Treasurer Jim Chalmers and Employment Minister Tony Burke presented a submission to the Fair Work Commission supporting the increase. As a result, the commission granted a 5.2% increase in the national minimum wage, or $40.
The 5.2% increase is unlikely to be inflationary. Today’s wage system is different from that of the 1980s, in that there are workers covered by company collective agreements alongside the minimum wage safety net. Forty years ago, the National Wages Case covered everyone.
For this reason, the inflationary impact of a minimum wage increase will not be the same as for a national wage increase, when all wages have been adjusted for price increases (wage indexation days). There is no chance of a wage-price spiral like the stagflation of the 1970s. In fact, the Accord structurally killed stagflation, to restore full employment at low inflation to the Australian labor market.
But what about RBA Governor Philip Lowe’s concern over enterprise bargaining agreements (EBAs) and inflation? The RBA and the Fair Work Commission will need to watch EBAs closely, to see if they settle into the 3-4% range for annual wage increases, and to what extent there are productivity offsets.
Now might be a good time for the Albanian government to think about some “social wage” benefits – benefits for workers that don’t come from their wages, like those offered by the Hawke-Keating government under the Accord . The government could propose a package on dental care (extension of Medicare to Denticare), childcare, education, pensions and possibly tax reform.