Robert Gottliebsen: Markets, national prosperity rest with a former Wallabies captain David Pocock

Never before has the Australian sharemarket and the prosperity of the nation depended on a former captain of the Wallabies.

The Albanese government led by its Employment Minister Tony Burke is trying to rush through the parliament highly complex industrial relations legislation Burke believes will boost wages.

The big unions are looking for wage increases of around 7 to 8 per cent to match inflation.

The legislation also poses a major threat to family business in Australia, which I explained last week under the heading “Why the Albanese government’s IR bill should be delayed and investigated”.

Holding back the government is ACT independent, David Pocock, who captained the Wallabies for nine tests between 2012 and 2019. Pocock and fellow senators Jacqui Lambie and Pauline Hanson are under incredible pressure from the government and will be offered very attractive “sweeteners”.

But Reserve Bank governor Philip Lowe issued them a chilling warning in his Melbourne manifesto by explaining that if the IR legislation aims or any other forces cause a sharp escalation in wage levels, then Australia faces the clear likelihood of “disaster”.

Lowe argued that compensating workers by the amount of the current inflation rate – the broad consumer price index (CPI) is above 7 per cent – will only create bigger problems.

“If that were to happen, what do you think inflation would be at next year? – 7 per cent, plus or minus.

“And then we’ve got to get compensated for that? Seven per cent … and this is what happened in the ‘70s and ‘80s. It turned out to be a disaster”.

Lowe went on: “People experience a decline in real wages; that’s tough. The alternative though is more difficult.”

“If we all buy into the idea that wages have to go up to compensate people for inflation, it will be painful, so best avoid that.”

The combination of words like “painful”and “disaster” are as clear a warning that the Reserve Bank of Australia is prepared to follow New Zealand and raise rates sufficiently to create a recession and use that recession to ram down inflation.

New Zealand’s central bank this week increased interest rates by 0.75 per cent and warned more rate rises were ahead which would drive the nation into a recession in 2023

“Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen,” RBNZ governor Adrian Orr said.

Senator Jacqui Lambie and Senator David Pocock will be offered the world to support the government’s IR bill. Picture: Martin Ollman/NCA NewsWire

Australia’s inflation rate is similar to New Zealand, so we are very close to going down the same path.

I believe Treasurer Jim Chalmers, unlike his parliamentary colleagues, understands the dangers to the nation if the IR bill is passed and achieves its wage boost aims.

In this context, Macquarie Bank says the share market rebound gives investors a chance to prepare for a deeper fall because the central bank indicator suggests the interest rate raising cycle won’t end until mid-2023.

Macquarie believes rate cuts – not just a pause in hikes – will be needed to drive sustainable recovery in shares.

If Pocock, Lambie and Hanson allow the industrial relations bill to pass and that fuels wages and therefore triggers big rises in interest rates, the sharemarket fall will be severe.

But just at the moment the Australian economy is remaining strong in many areas and there are signs that wages are under control.

Indeed, some builders are starting to see a moderation in price rises.

Lowe has not had a good record in predicting economic trends, but if the IR bill in its present form fails and the current wage moderation is sustained, then there is a chance that we can avoid a “painful” and “disastrous” experience.

But union pressure on the ALP is so strong that they will offer the world to Pocock, Lambie and Hanson to pass the legislation and worry about the consequences later.