We’ve come a long way from gotcha questions about economic indices during the election campaign. Treasurer Jim Chalmers has the press gallery eating out of his hand ahead of tomorrow’s budget. Even The Australian has run a puff piece on him.
Every leaked number has been lapped up, every narrative readily accepted. Especially the dominant narrative that things are far worse economically and fiscally than the previous government said.
The Charter of Budget Honesty and the Pre-election Economic and Fiscal Outlook was supposed to end this hackneyed bit of political theatre, but Chalmers and Finance Minister Katy Gallagher have kept it going successfully — helped by the fact that, in succeeding the most corrupt government in federal history, they had a budget riddled with garbage spending. If you’re flogging a political narrative, it helps if it’s true, though it’s no necessity.
The sillier narrative is that this is genuine budget, rather than a glorified Mid-Year Economic and Fiscal Outlook (MYEFO). The purpose of the MYEFO is to provide a reality check on economic and fiscal forecasts made well before the start of the relevant financial year. In this case, the forecasts back in April by the Morrison government were wildly optimistic in some areas and wildly pessimistic in others.
The revenue forecasts were deliberately downplayed despite what was already apparent at the time: that the invasion of Ukraine was going to inject a huge shot of tax revenue from coal companies. As it’s turned out, the spike in energy prices has been so massive that even Australia’s worst tax avoiders, gas companies, have been forced to pay some.
But the economic forecasts were already too optimistic on budget night and have only proven more so since then: inflation has surged, interest rates have soared and economic growth, under the hammer of much higher interest rates and a likely global recession, is looking parlous. Thus the “we’ll all be rooned” tenor of Chalmers’ commentary.
Oddly, the area where things have deteriorated worst of all has received relatively sparse coverage: real wages are in freefall courtesy of higher inflation and the continuing absence of wages growth — despite the insistence from the Reserve Bank that pay rises are just around the corner (the RBA, proudly predicting a wage surge since 2014!).
Yesterday a gormless subeditor at the ABC claimed “Treasurer Jim Chalmers reveals workers’ pay will go backwards until 2024-25”. There was no revelation — it’s been obvious for many months that dramatically higher inflation was going to see real wages go even further backwards well into next year and beyond.
Wages growth has been stuck at 0.7% since late 2021. The only reason it might rise off that in the September quarter is the Fair Work Commission’s minimum wage increase, due to mostly kick in in July. The RBA, hilariously, thinks wages growth will be 3.4% in annual terms by June next year. If we accept that, it still means that real wages will fall by 2.35% in a single year if Chalmers’ inflation forecast is accurate. That’s on top of the 3.5% real wages fall in 2021-22.
So your average household will have lost more than $1 in $20 between July last year and June next year. With more to come in 2023-24 and beyond. Even under the most optimistic of scenarios — wages growth of 4% and inflation back within the target band of 2%-3%, it will take ordinary households the rest of the decade to get real wages back to where they were early last year.
That’s before we get to increased mortgage payments, of course. And before you take into account low-income earners have consistently had lower wages growth than the rest of us.
Strange that none of this is reported with anything like the breathless enthusiasm that attaches to other leaked numbers from the “budget”. It’s almost as if — stay with us here, this is pretty wild — the media have some sort of in-built resistance to seeing how badly workers have been dudded for the last decade.
And inflation will get worse, courtesy of the widespread flooding currently ravaging communities. It’s something we need to get used to; having cooked the planet, we’ll have to get used to much more extreme weather.
The 7% to 8% inflation we’ll endure for the rest of this year isn’t as bad as in the UK or the US, but the wrecking of real wages along with higher mortgage payments at some point is going to be expressed in spending. No wonder Chalmers has — per today’s leaked number — significantly revised down growth next year.
At that point, the penny might drop in Australia’s business sector, which has been enjoying the goldilocks environment of low wages growth and high inflation (which provides a cover to lift prices beyond what’s necessary), that smashing household incomes in the name of increasing profits comes with some downside. If we enter a recession, that downside might be considerable.
How is your household feeling the economic pinch? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
