Albanese at odds with assistant treasurer on ‘magic pudding’ pay hike

Anthony Albanese’s call for a 5.1 per cent pay hike contradicts his shadow assistant treasurer and has been lambasted by economists as a “magic pudding” approach to the cost of living.

Anthony Albanese’s call for workers to receive a 5.1 per cent pay hike in line with inflation directly contrdicts the work of his shadow treasury and has been lambasted by economists for taking a “magic pudding” approach to the cost of living.

While rejecting a call by the ACTU for a 5.5 per cent hike in the minimum wage on Tuesday Mr Albanese said he would “absolutely” back a 5.1 per cent rise for workers.

“What I say is that people can’t afford to go backwards,” Mr Albanese said.

His comments were later echoed by Labor spokesman Jason Clare who said, “The alternative to that is that Australians on low incomes are poor, that they go backwards, that they’ve got less money in their pocket this year than they had last year.”

But the Labor leader’s view contradicts the work of Mr Albanese’s own shadow assistant treasurer, whose academic work found that large increases in the minimum wage can cut employment.

Labor MP Dr Andrew Leigh. Picture: Stuart McEvoy.

Previous work done by Labor’s Shadow Assistant Treasurer Dr Andrew Leigh argued in a number of newspaper articles and scholarly papers that hiking the minimum wage would hurt the worst off by reducing employment prospects.

In a 2007 paper, Dr Leigh found that a 6 per cent increase in the minimum wage would cause a 0.8 per cent fall in employment, equivalent to 100,000 jobs.

Prime Minister Scott Morrison immediately accused Mr Albanese of “just running off at the mouth” on Labor’s wages policy.

Mr Morrison said the Labor leader was “making things up on the run about what he thinks wages should be” without “actually thinking through the consequences of the things he’s talking about”.

“(Mr Albanese is) just running off the mouth on important issues like our national economy and national security,” he said.

The push to boost wages was also slammed by economists as potentially inflationary, threatening to tip Australia into a wage-price spiral that will lead to higher interest rates and reduced standards of living.

Anthony Albanese campaigning in Victoria today. Picture: Sam Ruttyn

George Washington University economist Steven Hamilton, who is also a visiting fellow at the Tax and Transfer Policy Institute at ANU, said that there was no “magic pudding” that could actually fix the problem of workers going backwards.

“We’ve had a one off shock due to Ukraine, Ukrainian crisis and shutdowns in Shanghai, that’s a fact of life that flows on to workers in higher prices,” he said.

“But if the industrial umpire wants to impose that cost on business instead by forcing them to pay workers more those business will respond by raising prices.

“There’s no magic pudding — if that process kicks off, the inevitable consequence is that interest rates are higher, and that means mortgage payments are higher.

Gareth Aird, Head of Australian Economics at Commonwealth Bank, agreed wages should go up but said that what Mr Albanese was calling for threatened to push interest rates higher.

“Wages growth around 3.5% is consistent with inflation within the target band, so wage rises above that means inflation above target for longer and more rate hikes to get it back down.

“In short, wages growth of 5.1% all else being equal means higher interest rates than otherwise and the pain lands on those with a mortgage,” he said.

Commonwealth Bank’s head of Australian economics Gareth Aird.

“A sensible opposition would say that the RBA is in charge of handling inflation, and focus instead on supply side and raising productivity and wage growth.”

Independent economist Saul Eslake cautioned that while both sides of politics needed to talk more about improving productivity, under current circumstances where “demand is strong and businesses are telling teh RBA that they can and will pass on cost increases (such as wages) ... the potential here is for higher interest rates which land on mortgage holders and small businesses and anyone with a large amount of debt.”

Innes Willox, head of the Ai Group, said, “In the current circumstances, there is a clear risk that a high increase in wages without improved workplace productivity would fuel inflation and increase the likelihood of a steeper rise in interest rates to the detriment of growth and job creation.

“An increase in the minimum wages as demanded by unions would have adverse impacts on the economy, on unemployment, on underemployment and on sentiment, and would be a setback for many low-income households.”

Originally published as Albanese at odds with assistant treasurer on ‘magic pudding’ pay hike