Make workplaces more flexible, says RBA boss Philip Lowe

Philip Lowe cautions the Labor government against making it harder for employers to hire and fire, or workers to change jobs.

RBA governor Philip Lowe has warned against making it harder for employers to hire and fire, or for workers to move between jobs in response to changing circumstances. Picture: Richard Dobson

Reserve Bank governor Philip Lowe has challenged the Albanese government to make workplaces more flexible and productive and to get the budget under control in order to secure the country’s prosperity in a more dangerous post-Covid world.

As the government pushes through parliament the biggest workplace reforms since the 1970s, which would lay the foundation for multi-employer bargaining, Dr Lowe said that “as a country, we need to do what we can to make sure that the supply side of our own economy is flexible”.

In a speech at the annual dinner of the Committee for the Economic Development of Australia in Melbourne, Dr Lowe warned against making it harder for employers to hire and fire, or for workers to move between jobs in response to changing circumstances.

“In a world of more frequent supply shocks, we will be better off if there is flexibility in our labour and product markets so that we can respond quickly and effectively,” he said. “This includes flexibility in terms of fiscal policy, which requires maintaining a strong underlying structural budget position.”

Business groups and the opposition have attacked the union-backed Secure Jobs, Better Pay bill, saying the legislation would place unacceptable regulatory burdens on small employers and make it easier for workers to strike. Australian Chamber of Commerce and Industry chief executive Andrew McKellar said: “The last thing small business owners need right now is to be dragged into expensive, protracted, and arduous multi-employer bargaining agreements that will do nothing to increase wages, nothing more to make jobs more secure, and nothing to make ­businesses more resilient in the facing of growing uncertainty.”

The RBA governor also urged policymakers to take up the pressing challenge of lifting the nation’s poor productivity challenge as ­another way to insulate the country against more frequent shocks.

“We can’t affect the international environment; we can affect our own ability to produce goods and services efficiently,” he said.

“Doing what we can here is an important element in securing our own prosperity, and there has been no shortage of ideas in this regard.”

Dr Lowe said that, after a decade of low and falling consumer prices, the task of managing inflation would become more difficult, and that monetary policymakers “are likely to have to live with more variability in inflation”.

He warned of a future where deglobalisation, ageing societies, more frequent natural disasters, and the green-energy transition made the world more vulnerable to damaging shocks.

“All four of these supply-side developments are first-order ­issues that are likely to affect the environment for Australian business over the years ahead,” he said. “They are also likely to affect the inflation dynamic here and elsewhere, leading to more variability in inflation from year to year.”

As the OECD urged rich ­countries to introduce “credible fiscal frameworks” to put their budgets back on a sustainable footing over the medium term, Dr Lowe said Australia must take steps to bring the estimated $50bn structural deficit under control.

Beyond the immediate shock of the global pandemic and more recently the Russian invasion of Ukraine, Dr Lowe said there were four long-term developments that would likely trigger wider swings in consumer price growth than in recent decades: climbing barriers to trade and investment as globalisation reverses; slowing growth in workforces as populations age; more frequent and extreme weather events as a result of global warming; and immense challenge of transitioning away from fossil fuels.

“There is very significant investment in renewable energy around the world as we transition to green energy,” Dr Lowe said. “But, at the same time, the existing capital stock that is used to produce energy is depreciating quickly, through decommissioning or lower levels of sustaining investment. It is difficult to make ­predictions here, but it’s probable that the global capital stock that is used to produce energy will come under recurring pressure in the years ahead.

“If so, we could expect higher and more volatile energy prices during the transition to a more renewables-based energy supply.

“None of the developments that I have spoken about undermine our ability to achieve the inflation target on average, but they are likely to complicate the task.”

In this increasingly uncertain and volatile world, Dr Lowe ­defended the existing, flexible ­inflation-targeting regime as the best way for monetary policymakers to defend against the “scourge” of runaway consumer prices. “The evidence shows that economies work better with low inflation and that, once inflation becomes entrenched, it is very costly to stamp it out,” he said.

“It is for these reasons that the Reserve Bank board is resolute in its determination to return inflation to target and we will do what is necessary to achieve that.”

He said a strong inflation ­“anchor” was more important than ever to make sure inflation expectations did not significantly shift, which would make it harder to return consumer price growth to the 2-3 per cent target.

After delivering a string of seven consecutive rate rises that have lifted the cash rate target from 0.1 per cent to 2.85 per cent, Dr Lowe said the RBA understood that many people were finding interest rate rises difficult.

“It is necessary, though, to ensure that the current period of higher inflation is only temporary,” he said.

With inflation set to peak at 8 per cent by December, Dr Lowe said the RBA board expected to increase interest rates further”.

The governor emphasised that how much further depended on how the economy here and abroad developed in the new year.

“We have not ruled out returning to 50 basis point increases if that is necessary,” he said. “Nor have we ruled out keeping rates unchanged for a time as we assess the state of the economy and the outlook for inflation. As we take our decisions over coming meetings, we will be paying close attention to developments in the global economy, the evolution of household spending and wage and price setting behaviour.”