Recovery still requires commitment to reforms

Reserve Bank of Australia governor Philip Lowe has given an upbeat assessment of how Australia’s economy is bouncing back from the pandemic. Jobs growth and business activity are returning faster than the RBA’s most optimistic earlier forecasts.

In a speech to the National Press Club, Dr Lowe gave households and business a clear signal that low interest rates would continue for some years, providing confidence to plan and invest. Higher house prices will not force the RBA to change course because, on balance, rising asset values are still considered a positive thing for jobs growth and activity in the wider economy due to the greater financial confidence they give to homeowners. The federal government can accept Dr Lowe’s comments as confirmation that its COVID-19 response and recovery strategy is working. But this is not justification for complacency, to give in to demands that welfare spending be extended beyond what is necessary, or give up on the difficult task of reform. A durable recovery will require more than rising house prices.

Included in Dr Lowe’s assessment was a warning that continued strong expansion was not guaranteed. With substantial spare capacity left in the economy, there was still quite a way to go before the RBA reached its goals of full employment and inflation consistent with its target. The unemployment rate is higher today than it has been for almost two decades, and the upcoming national accounts for the December quarter are likely to show the level of gross domestic product is 4 per cent lower than where the RBA thought it would be a year ago. Dr Lowe said underlying inflation was running at 1.25 per cent, well below the medium-term target of 2 per cent to 3 per cent, and wage growth was the lowest in decades. Future uncertainty is even more reason for the government to push ahead with reforms that build productivity.

One obvious area is industrial relations, where the government has put forward an omnibus bill of modest measures that is shaping as a key political battleground. As workplace editor Ewin Hannan reported on Wednesday, Labor says it will oppose the Coalition’s entire IR bill despite it containing measures that it normally would be expected to support, such as criminalising wage theft. Labor’s position is more extraordinary given Senate hearings into the legislation are not due to start until next week. ACTU president Michele O’Neil has said unions wanted significant amendments, and a review of the bill by the Australia Institute has said the government’s proposal will give COVID-stressed employers more power to bypass the Fair Work Act’s “better off overall” test and “open the floodgates” for employers to rush the approval of non-union enterprise agreements that undercut award wages.

Scott Morrison says the government is taking a centre line, having already rejected more extreme changes that some groups had been seeking. The Prime Minister told parliament Labor was “overreaching” in its opposition to the IR changes. The Morrison government already has signalled it is willing to reconsider the limited changes to the BOOT to aid the passage of reform. It will now negotiate with the crossbenchers for support. The ALP is giving all the signals it wants to dig in for a fight to replay the Work Choices battle that helped deliver it government against John Howard. Anthony Albanese appears to be crafting his election approach based on the twin messages of “It’s Time” and a re-run of Work Choices. His message to families is Labor is “on your side”. Mr Albanese told caucus: “At the next election, Scott Morrison will be asking for the Libs and Nats to have more time in office than John Howard had.” He simultaneously launched a negative attack against the Coalition for having an agenda with “cuts to JobKeeper, cuts to JobSeeker and cuts to wages”. The ALP used question time on Tuesday and Wednesday to quiz the government about why part-time workers in care industries would be substantially worse off under the proposed IR reforms. The government and employer groups have accused Labor of misrepresenting the detail of the proposed changes.

Mr Morrison is building the case for workplace flexibility against the warnings from the RBA, repeated by Dr Lowe on Wednesday, that labour markets and wages growth remain weak. The government must stick to its guns on IR reform, which is all about getting more Australians back into work.