Poll contest over IR and interest rates is brewing

With the focus shifting from pandemic management to how best to build future economic prosperity, a demand by the trade union movement that federal Labor re-embrace a more centralised system to set wages is the last thing the nation needs. A return to collective bargaining across industries would be a step backwards, and would risk unwinding hard-won reforms that helped to liberate the economy and delivered a generation of recession-free growth. The ACTU is likely to find a seductive scare campaign in its demand for higher wages, something even the Reserve Bank of Australia is calling for to stimulate growth. Returning to the strike-plagued landscape of the 1970s is not the way to do it.

The ACTU demands are a threat to Anthony Albanese’s small-target strategy but voters now know what organised labour will expect from a future Labor government. Unless the Opposition Leader publicly rejects the union demands, it will enliven a federal election contest based on who can be trusted to best manage the post-Covid recovery. A wage breakout without corresponding productivity gains would be bad for business and inevitably would lead to higher inflation and interest rates.

With inflation rising swiftly around the world in the wake of supply constraints created by the pandemic, the issue of future interest rate policy has taken centre stage. This week RBA governor Philip Lowe talked down the prospect of runaway inflation in Australia, despite worrying signs in the US. He expects international trade to rebalance and consumers to move from buying goods to spending on services again. If all goes well, Dr Lowe says, this will put inflation at the lower end of the RBA’s target range of 2 per cent to 3 per cent. This would enable the RBA to stick with its advice that it will be able to maintain the cash rate at the emergency low of 0.1 per cent until 2024. The RBA assumptions are based on an orderly rise in wages that inevitably will flow from a tightening labour market. The challenge is to match the wages growth with improvements in productivity.

Both sides of politics agree the existing enterprise bargaining system needs reform. Unfortunately, the federal government lost its appetite for industrial relations reform after proposed changes negotiated with employers and the ACTU were rejected by Labor and the crossbenchers. The ACTU used the introduction of modest IR reform proposals to threaten the Morrison government with a re-run of the big-spending Work Choices campaign that was central to John Howard’s defeat in 2007. There is a sense of history repeating. Mr Howard was successful in his 2004 campaign with the message that interest rates would always be higher under Labor. The ACTU campaign on wages sets the scene for a re-run of the theme. It is inevitable that interest rates will rise from their historic lows at some point, regardless of who is in office. But returning to a more centralised wage-fixing system, as championed by the ACTU, is a recipe for runaway wage growth on the back of productivity-sapping industrial campaigns, setting the scene for higher inflation. This in turn would produce higher interest rate rises that would punish homebuyers and businesses, and would add considerably to the cost of servicing the high debt levels taken on during the pandemic.

What is needed is more flexibility in the workplace, not less. The nation is entering a period of effective full employment. This will lead to higher wages for workers with skills that are in demand. Imposing uniform outcomes across industries is the way backwards, not towards the future.