Jim Chalmers is right that high interest rates are smashing the economy. He blames Reserve Bank governor Michele Bullock, but the main culprit is none other than the Treasurer himself.
Chalmers could pass the blame to Anthony Albanese, Tony Burke or Chris Bowen, but they have very limited economic knowledge. Only the Treasurer and his department had the economic knowledge to realise that the government’s policies and actions would boost the cost base of the nation, so maintaining high interest rates.
And to me, nothing illustrates the inflationary consequences of the government actions better than the Qantas/Virgin affair, which will trigger higher domestic airfares. In addition, at the weekend when mixing with ordinary Australians at Brisbane’s Riverfire festival, I also discovered the community reaction to the huge Qantas pay rises.
They did not link the Qantas wage rises to either airfares or to the substantial cost rises ahead in road transport and mining following the 700-page industrial relations legislation.
These early breakouts are merely signs of what is to come. Bullock must be horrified at the implications but will need to be strong when a key culprit blames her instead of accepting the blame himself.
The Qantas “same job, same pay” deal will set a pattern for future arrangements across the industrial landscape. In coal mining we are already seeing Fair Work responding to the legislation by lumping assorted coal mines into an industry knowing it is likely to lift their cost base. Industries across the nation will gradually follow.
But Peter Dutton will need to be very careful how he presents this to voters. At the Brisbane Riverfire, I was in the company of people who were close to Qantas staff beneficiaries, and they were extolling the virtues of the “same job, same pay” benefits to Qantas people. The Prime Minister was a “hero” so the Qantas deal might be an electoral plus unless Dutton can link “same job, same pay” to higher airfares and interest rates. The Riverfire community simply want to bridge the cost-of-living gap.
The Qantas situation is different to others, but there will be many other variations as the nationwide rules are applied.
To understand the Qantas and Virgin affair I must take you back to 2008 when arguably the man who saved Qantas – then chief executive Geoff Dixon – did an incredible deal. He set up two labour hire companies, one for the domestic airline and the second for international, which would hire all new aircrew employees.
The pay reductions were substantial. Those still employed under the pre-2008 agreements received about 25 per cent more than newcomers in domestic flights and in international the difference was much greater, expanding to the current international differential of around 70 per cent in international. Qantas has operated on two union agreed pay structures for 16 years.
Around 12 years later Dixon’s successor Alan Joyce performed a similar operation in the ground employees’ area and again labour hire companies were brought in to provide the labour at a lower price. But whereas Dixon retained the existing aircrew employees, Joyce retrenched ground staff in an action that was later deemed to be illegal. It’s now a complex issue unique to Qantas,
The “same job, same pay” clauses in the industrial relations legislation meant that in domestic aircrew, Qantas had no choice but to bridge the 25 per cent average gap.
In international, arguably the “same job, same pay” increase would need to be around 70 per cent. But there are legislative clauses that arguably would enable Qantas to insulate itself from such an increase.
Whereas in domestic Qantas dominates the market, in international it must compete against low-cost carriers, so a 70 per cent aircrew pay rise would mean most of the international routes would need to shut down.
The unions understood this and were not prepared to make Qantas the test case to determine what the “exception rules” might mean.
So they settled for an average 25 per cent rise – the same as that given to domestic staff.
Qantas believes it can manage the international increase, but that will depend on how aggressive the international airlines price on key routes.
As I explained last week, the industrial relations act is designed to gradually replace enterprise agreements with industry agreements as part of the plan to substantially increase union membership. The inevitable increase in the cost base of the nation was ignored.
In the Qantas affair, the next step is an airline industry agreement, where the unions will be pressing Virgin to match Qantas salaries as part of the required industry agreement.
Virgin staff are currently paid less than Qantas, so it would be an even bigger jump. Both Qantas and Virgin will need to lift airline prices substantially. That’s how the industrial relations system is designed to operate.
The only way to prevent the two airlines from passing on the extra costs is for the RBA to keep the economy depressed, so fewer people travel, so there are plenty of spare seats. That principle applies to most enterprises selling into the local market.
The industrial relations legislation also paves the way for a much greater role for unions in the management of most enterprises. This was the system of past decades, and it created much greater costs which often required tariff protection.
Large Australian enterprises have been watching the approaching horror of the 700 pages of industrial relations legislation and the energy mess so, not surprisingly, many have cut back investment and are looking at retrenchments.
The first step in fixing the problem is for Chalmers to recognise his role in the community interest rate suffering.
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