Telstra job cuts the start of fewer jobs due to high costs and low productivity

Job losses and longer queues for Centrelink support could be one outcome of Australia’s changing economic realities. Picture: William West/AFP

The government’s economic boost will not stop retrenchments in many enterprises during the next six months.

We will see a rare convergence of forces – higher revenue and profits plus widespread staff retrenchments.

Telstra fired the nationwide retrenchment starter’s gun this week.

Retailers in Australia, the US and Europe are all finding current trading much tougher and that is being reflected in share prices.

But don’t be surprised if there is a rise in the Australian base profitability in coming months.

We are looking at a major injection of spending power into the economy starting with the July 1 tax cuts, which are spread across the board.

Then comes a likely increase in base wages as a result of the national wage hearing and thirdly, a large crop of baby boomers are set to hit the cash withdrawal entitlement age and are now able tap to their superannuation cash either via a pension or lump sum.

The overwhelming reader response to my superannuation measures impact commentary this week indicates that community confidence in superannuation is declining sharply as a result of government actions. The cash withdrawal rate may accelerate.

To that we add a government that is spraying money around to keep the economy strong and hold back the cost of living leading up to next year’s election.

The power price subsidy is the best example.

Telstra CEO Vicki Brady has blamed inflation and rising energy prices for the decision to cut jobs. Picture: NCA NewsWire / Luis Ascui

Obviously, those under rent and mortgage stress will use much of their additional cash to keep their head above water but those — often in the older age brackets – who are not stressed will spend chunks of the extra money hitting their bank accounts.

But then come the retrenchments, which are set to be accelerated by the 700 pages of government industrial relations legislation.

On Thursday, I set out in simple terms how at least part of the IR measures will transform the way enterprises big and small are managed. It will lower productivity and increase costs.

These future government blows come as the costs of doing business are continuing to rise relentlessly and companies will try and tap the extra money in the system with higher prices.

In normal times, when there is the possibility of stronger trading, enterprises hold on to their staff.

Many will follow the traditional strategy, but the current tougher trading environment is causing a great many companies to look at a restructure of their labour force, involving retrenchments.

The years of labour shortages have often resulted in over-hiring and overpayments.

But that retrenchment impetus now has an extra dimension because the IR legislation will give unions far more power over the management of enterprises.

Telstra’s major restructuring this week was announced without detailed consultation with the unions.

Such actions may be difficult after August 26, when the IR Act comes into force, but in a year’s time, it will be impossible as the legislation shifts control of enterprises in the direction of unions.

Companies that believe they will need to restructure will need to follow the Telstra example and begin that restructuring process before August 26 and execute it swiftly while they still have control over the workforce.

Those that don’t act quickly may never be able to gain the efficiencies.

Accordingly, in the coming half year many of those enterprises benefiting from the cash stimulation will not maximise their sales returns because they are reducing their labour force. But this will often maximise the profits.

The Reserve Bank will, of course, be monitoring to what extent the cash injection boosts inflation in coming months and that will play a big role in their interest rate decisions.

Most economists expect that there will be an interest rate cut towards the end of 2024.

But by that time the horrors of the IR legislation and the lower productivity it promises will be very apparent.

Australia is the only developed country in the world that has taken steps to deliberately reduce productivity in the current environment.

The IR legislation may take a while to kick in, but longer term we are set to be a much higher-cost nation, with obvious implications for long term inflation.