‘You’re chasing your tail’: Kelty warns against trying to outrun inflation with repeated wage rises

Bill Kelty has a warning for unions and workers hoping for pay rises to keep up with inflation: if you end up “chasing your tail”, it’s ultimately no good for anyone.

But the former ACTU boss dismisses much of the talk of a looming wage-inflation spiral as “hyperbole”, saying current economic conditions bear no resemblance to those of the 1970s and early ’80s, when pay increases were linked to the consumer price index.

Former ACTU secretary Bill Kelty says average wage rises of 3.5 to 4 per cent are more likely than an increase in line with expected inflation of 7 per cent.Credit: Justin McManus

“I was in an environment of chasing higher wages, and it was no good for anybody,” Kelty said this week amid the debate about whether the economy can withstand workers’ push for higher pay during the cost-of-living crisis.

“You’re chasing your tail with higher and higher inflation – it’s inflationary, leap-frogging wages.”

Up to 2.8 million Australians will receive a pay rise from Friday after the Fair Work Commission increased the national minimum wage by 5.2 per cent and pay for people on higher industry awards by 4.6 per cent, which the business community has warned could lead to a wage-inflation spiral.

Kelty – who was instrumental in the first Accord struck in 1983, when unions agreed to limit wage demands in return for a government promise to help ease inflation and increase the social wage – said much of the commentary was “hype, misunderstanding” in an attempt to reduce the legitimacy of the Labor government.

He said inflation today was essentially being driven by global factors such as energy supply shortages, supply-chain issues and the war in Ukraine and was “not the same” as in the 1970s and ’80s.

“If you get 5 to 7 per cent inflation, will it necessarily lead to a 7 per cent wage adjustment? The answer is no,” he said, adding average wage rises of 3.5 to 4 per cent were more likely.

But Kelty said while inflation had to be addressed, so did the underlying inadequacy of the enterprise bargaining system, which had whittled away the power of unions to negotiate pay rises.

Data released by the Attorney-General’s Department on Thursday showed wage increases negotiated via enterprise bargaining were 2.6 per cent in the March quarter, unchanged from the previous three months and the same quarter in 2021, while the consumer price index sits at 5.1 per cent.

Both unions and employers decried the state of enterprise bargaining after the figures’ release, with ACTU secretary Sally McManus saying it was part of a “wage suppression problem”.

“Even though workers are better off under collective agreements, the bargaining system has for a long time failed to deliver increases that reflect growth in profitability or success of businesses, let alone keeping up with the cost of living,” McManus said.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar agreed enterprise bargaining was not “playing its part”.

“Enterprise agreements should be fundamental to our industrial relations system, driving pay increases, improving job security, and boosting productivity. However, enterprise bargaining has crashed over the past decade,” he said.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.