Penalty rate cut: It’s not just wages going backwards — our economy will spiral too

Hundreds of thousands of workers across Australia are set to feel the pain of a penalty rate cut next week. But it’s not just wages going backwards — our economy is set to tumble too, writes Mark Morey.

After 28 years of continuous growth, we’ve become accustomed to thinking our national economy is indestructible.

Not even the Global Financial Crisis could slow us down. As virtually every other developed economy shrunk, Australia ploughed on.

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But just imagine, for a minute that you’re an international agent of destruction, an evil economic mischief-maker hellbent on global chaos. Or worse still, a hedge fund manager.

“Your mission, should you choose to accept it, is to force the Australian economy into recession.”

How would you do it? How would you bring the golden run to end?

From Monday, July 1, workers in the retail, hospitality, fast food, restaurant and pharmacy sectors will again have their Sunday penalty rates cut. Picture: Getty Images

A good place to start (that’s if you’re a super villain) would be tightening the noose on consumer spending. As demand contracts, confidence dips, and business pulls back on investment.

As investment declines, so too does productivity, because business decisions to purchase new plant and equipment, or recruit staff, are deferred or cancelled.

With jobs growth stagnating, the lack of confidence bleeds into other sectors.

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Other workers start worrying about their future job prospects, so they pull back on consumption spending as well.

The cycle continues until the economy is trapped in a downward spiral.

“Ha ha!” you cry. “But how do I get this economic wrecking ball rolling in the first place?”

The answer is to cut the real wages of workers. If they can’t earn it, they can’t spend it.

And this, of course, is exactly what is about to happen in Australia.

Protesters take a stand against the penalty rates cut that will come into effect from Monday. Picture: Brendan Radke/News Corp Australia

From Monday, July 1, workers in the retail, hospitality, fast food, restaurant and pharmacy sectors will again have their Sunday penalty rates cut. And penalty rates will be cut again on the 1st of July next year as well.

When you take money away from low-paid workers, they have to adjust somehow.

It doesn’t mean trimming a few luxuries, such as an overseas holiday, or reducing repayments on the holiday house.

It means spending less on housing, food, transport and clothes.

It means thinking twice about getting a coffee from their local coffee shop, or waiting longer for a haircut.

If means a tougher struggle to pay kids’ school fees, or to cover an electricity bill.

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This is the reality facing hundreds of thousands of workers across Australia. For these workers, another round of cuts to their penalty rates will squeeze their household budget.

The irony, if that’s the right word, is that the attack hasn’t come from a nefarious super villain, or even a rogue foreign power.

The attack has come from within. It is deliberate strategy from our own Federal Government, executed through deliberate policy strikes against Australian workers.

As the Finance Minister Mathias Cormann himself explained, keeping wages down is a “deliberate feature of our economic architecture”.

The penalty rate cuts will mean thinking twice about getting a coffee. Picture: Supplied

The head of the bosses’ hospitality lobby, John Hart of the Restaurant and Catering Association has gone even further, trying to excuse some restaurant operators for ‘opting out’ of legal rates of pay.

You wonder what the limit is for some of these characters — presumably serfdom would entice them to employ more workers and adhere to the law?

Except their arguments do not survive contact with reality. It was recently revealed that cuts to penalty rates have not created extra jobs.

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Australia does not need a race to the bottom. This kind of thinking is dangerous and it needs to be rejected for good.

The Australian economy’s GDP growth rate is already lower than at any time since the Global Financial Crisis, increasing just 0.4 per cent for the first quarter of 2019, following growth of just 0.2 per cent in the previous quarter.

Cutting penalty rates will hurt people who don’t have money to spare. And the pain will spread like a virus throughout our economy, and ultimately hurt all of us.

Penalty rates have not created more jobs, so why do them? Picture: istock

It doesn’t have to be this way.

Imagine if our Federal Government accepted a new challenge. Instead of pretending to drive growth from the top down, how about generating real growth from the bottom up?

And instead of cutting their pay, how about restoring penalty rates for weekend workers, further reducing underemployment and facilitating wages growth?

Such a scenario isn’t Mission Impossible. In fact, it’s Mission Necessary if we are to give the Australian economy the boost it desperately needs.

Mark Morey is secretary of Unions NSW