Labor enters the danger zone as business groups voice concerns over contradictory economic positions
The Albanese government seems bedevilled by a contradictory personality. Where is the central co-ordinated economic strategy?
The reputation of the Labor Party and the Treasury is on the line in Australia’s management of the inflation episode. With interest rates still expected to increase further, the question arises: should Labor have done more in the battle against inflation and the quest to lift productivity, the keys to reviving living standards and real wages in this country?
Labor’s political tactic of blaming Lowe for the interest rate pain is close to expiry. But, as the fog lifts, what is more apparent are the contradictory policies of the Albanese government as it jawbones about the evil of inflation while running radical pro-union industrial relations laws certain to hurt productivity.
The conclusion is irresistible. Labor wants to avoid the blame for high interest rates, still pursue its industrial changes regardless, gamble there is a soft landing for the economy and talk up its productivity agenda while the results are a disastrous flat line.
Business groups, feeling exploited in 2022 by Anthony Albanese’s consensus mantra, have struck first in the campaign against Employment and Workplace Relations Minister Tony Burke’s second IR package and now are reaching defining views about this government.
In an interview with Inquirer, Business Council of Australia chief executive Jennifer Westacott says an Albanese government pulling in contradictory economic directions is “one of our big concerns”. She says: “At a time when people are struggling with the cost of living, when businesses are struggling with a downturn in the economy, why would we make it harder for people to do business? Why would we make it harder to give people more hours, to be more flexible? Why would we try to lock in old industry structures when we should have the economy as dynamic as we can have it?
“These things are contradictory to the idea of increasing wages, growing productivity and lifting our competitiveness. What we’re doing is going to have exactly the opposite effect.
“We want our manufacturing sector to be revitalised, we want full employment, we want to see industries like mining thrive because it underpins so much of our economic strength. But at the same time we’re not doing anything to address our investment drought; even worse, we’re doing things to the economy to reduce flexibility at a time when workers and businesses need greater flexibility. We’re adding to the cost of business rather than reducing the cost of business.
“These IR changes mean unions will be much more powerful, they will have presence in workplaces where they are not currently. You are also going to have the Fair Work Commission having a much more interventionist role in setting wages and conditions for some sectors. This is not the kind of workplace relations system we need.”
Burke’s IR agenda originates in Labor’s campaign mandate and involves regulation to achieve the “same job, same pay” rule, restricting the gig economy in the cause of secure work and winding back casual employment.
BHP chief executive Mike Henry has warned the changes will cost BHP in this country about $1.5bn a year. “You ask the question, what can we do to enhance productivity?” Henry says. “I would put my hand up and say stop doing more harm. On the industrial relations front at a national level, these are going to be productivity killers.”
For those who think BHP can afford $1.5bn, that’s not the issue. The issue is whether the IR system will generate or retard productivity – and that’s pivotal to the Prime Minister’s central election pledge to restore real wages growth and living standards.
Lowe, unlikely to be reappointed by Labor, already has pointed the blame gun at Labor, saying the government-backed wage rises need to be sustained by rising productivity. And that is nowhere to be sighted.
The more immediate test for the government and the Reserve Bank is the extent of the inevitable downturn. Judo Bank chief economic adviser Warren Hogan tells Inquirer: “I think the question is not whether we go into recession but the type of recession we have. We are almost guaranteed to experience some sort of mild technical recession, but that’s not materially different to a soft landing. It would be shallow, short-lived, not that disruptive.
“The big issue for me is whether or not we’re going to get a hard landing and a damaging recession, though, to be clear, I don’t see anything like what we got in the early 1990s. I think the current situation depends on whether interest rates have to rise to where they are in other countries. It’s whether they rise to about 5.5 per cent.
“People would be forced to sell property and marginal businesses would fail. If the current view in the market is right and the cash rate peaks at 4.35 or 4.6 per cent, that’s a recession in name only.
“But there’s a big political difference in these two outcomes. If we get the former then the government’s fiscal, wages and industrial relations strategy will look OK, but if we have to take the cash rate much higher that’s a different story.
“I would be thinking then of unemployment around 6 per cent, though a number of tipping points would come into play. In this scenario it would be clear the government should not have been egging on wages, that it should have done more on fiscal policy; you could even argue it should have waited to do IR. Another issue would be its surge in immigration. There’s a lot on the line between these two scenarios.
“This is an absolutely critical point for this government. If the bank is forced to take the cash rate far higher that means the government has made a massive misjudgment on its policy settings in its first year of office. And that misjudgment would have come from the Treasury and from the government’s advisers.
“I think the government’s political motivation was to dissociate itself from the rate hikes and, knowing an economic downturn was coming, trying to ensure it did not take the blame for that.”
Hogan outlines the possible miscalculation: “By not wanting to be seen to tighten fiscal policy, by not wanting to be seen to contribute to the eventual slowdown in the economy, they haven’t acted to avoid an even worse outcome via higher interest rates. If the hard-landing scenario plays out, if the cash rate goes above 5 per cent, I think the public is likely to say: ‘You guys didn’t manage this economy.’ ”
In this week’s statement keeping the cash rate at 4.1 per cent, Lowe says more interest rate increases “may be required” and, while economic opinion is split, many economists think two further 0.25 per cent increases are possible. That would be extremely contentious.
Acting Treasurer Katy Gallagher held the line. Her message typified the government mantra: the “independent” bank “had a job to do”, the government’s fiscal policy supported the bank’s monetary policy, the economy will slow as expected, the budget cost-of-living relief would help households and a recession “is not the Treasury forecast”.
In an interview with this paper published on Friday, former finance minister and now OECD secretary-general Mathias Cormann said economic growth in Australia was still projected to run above the OECD average and Australia’s monetary tightening had been more gradual, with rates still lower than in peer nations such as the US, Britain and Canada. It is a critical message.
RBA deputy governor Michele Bullock has announced the price for success – unemployment rising to 4.5 per cent by late next year – while saying this represents a policy of seeking a “more gradual return of inflation to target than many other central banks”.
While much pro-Labor sentiment is outraged at this projected increase in unemployment, it constitutes an outcome consistent with the “narrow” corridor of success the bank wants to negotiate between avoiding a major downturn and pulling inflation back to the 2-3 per cent range.
If this is success, what is failure? Failure would mean a significantly higher unemployment rate, higher interest rates for longer, a further lift in household pain and an irresistible political meltdown – with Labor under assault for running contradictory policies, overlooking warnings from Lowe, not taking the inflation threat sufficiently seriously, campaigning to increase wages and bringing down a 2023-24 budget that many private sector economists (but not Treasury) said only encouraged inflation.
In terms of government policy, Jim Chalmers repeatedly highlights budget restraint and support for monetary policy.
On the productivity front the federal Treasurer makes clear Labor’s agenda excludes industrial relations, famously saying “we don’t believe productivity gains come from scorched-earth industrial relations”.
His problem is that for decades the Productivity Commission has argued that workplace relations is pivotal to productivity results. Reviewing Labor’s overall approach, Hogan says: “What we’ve seen is a complete under-estimation of what inflation is because we haven’t seen significant inflation for over 30 years. I don’t think they have been serious about inflation. They see it as the Reserve Bank’s problem and that it will go away when the economy slows.
“I don’t think they have an understanding of how severe the 1970s inflation was.”
He says the government response is more window-dressing than real action.
The alternative story, however, is that if Lowe’s judgment proves correct then Lowe may become the saviour of the Albanese government – not that he will get any thanks. If the downturn is relatively modest, if inflation is beaten, then Albanese and Chalmers will argue they have negotiated the worst; that while there was pain and higher unemployment, Australia has come through; that Labor proved it cared, that it offered cost-of-living support, it promoted wage rises against the economic sceptics; and that the foundations have been laid for recovery.
And where will the Coalition be left if Labor gets through the inflation crisis with hardly any political damage?
On industrial relations, Burke has championed pay rises for workers in the largely feminised, low-paid, health and caring sectors of the economy, so vital during the pandemic.
His mantra has been “getting wages moving again” and seeking a core change in the bargaining system. Burke says in the labour-hire changes based on the “same job, same pay” model the government aspires only to plug “loopholes” being abused and the undermining of wages.
He defends the new multi-employer bargaining laws passed last year – loathed by most of the business lobbies – as basic to wage progress in areas such as the childcare sector.
Burke’s view of the IR system overall is that there is a need for “rebalancing” after a decade of Coalition government. This game plan is pivotal to the election commitment of the Albanese government. Burke has said, relying on Treasury advice, that as the current parliamentary term advances inflation will fall and have a three in front of it while wages will increase, the lines will cross, and wages will grow faster than prices.
This story is critical to the re-election strategy. Albanese needs to go to the next election with evidence of delivery on the real wages front. Wages must be running ahead of inflation, otherwise he has failed.
Based on the government’s April IR consultation paper the business lobbies are unpersuaded. They say while “same job, same pay” sounds idealistic, Labor’s concept is riddled with defects – that it means employers would be compelled to pay workers with little knowledge or track record the same as workers with proven and long records of achievement. They say further it punishes incentive, that you cannot win better pay “if your colleague does not share your ambition or work ethic”.
About 2.3 per cent of workers are in labour hire. It is used by government and companies to help source workers in an extremely tight labour market. For the ACTU, the attack on labour hire is an ideological and industrial goal.
Business says the proposals would extend across much of the economy and affect “every business which uses labour hire to access extra staff”. It says the proposals are unnecessary to curb abuses. Teams of people would be required to assess “every worker, every agreement, across every classification”.
At the same time the government seeks to limit the scope for casuals in the workforce, another union objective. About 2.7 million Australians or 23 per cent of the labour force are casuals. They have the right to seek conversion to full or part-time work after 12 months. Contrary to claims, the proportion of casuals has been unchanged for more than 25 years. Business argues that while people are choosing to be casuals, these changes will limit such choice and are designed to make the option more difficult and impractical.
Westacott attacks the changes, saying: “We think this is poor policy. The number of casuals has not changed for over 20 years and that’s the Productivity Commission analysis. The majority of casuals get a loading that reflects the nature of the work.
“This move is going to restrict employment opportunities for many people – young people who get their first job as a casual, women who work as a casual, or people who just want to get a few extra hours because they’re struggling with cost of living.
“We had a ruling in 2021 based on two court cases that said after 12 months if people had repeated hours of work the employer was obligated to offer them permanent work. Very few people have taken that up. The point with all these IR changes is: what is the problem we are trying to solve? Why do we want to make the economy more rigid? What are we trying to fix here? It won’t help the productivity disaster that we are currently in. It will make it worse.
“There’s no doubt some of these reforms are about increasing the scope and coverage of the trade union movement – the gig economy is a sector where the unions are currently not represented. The unions have had a longstanding position to oppose casual workers, but this is a choice people make and a choice they want to stay with.
“We should be going back to what has worked for a long time – an enterprise agreement system where you drive productivity at the enterprise level through negotiations and sharing benefits through higher wages.”
The risk for Labor is running industrial changes that assist the unions but weaken the economic interests of most workers.
Ultimately, Labor’s wage goals cannot be achieved by law or by enforcement. They need to be sustainable in both the current inflationary climate and in the post-inflation cycle. But the Albanese government seems bedevilled by a contradictory personality. Where is the central co-ordinated economic strategy?
More Coverage
The Reserve Bank of Australia under governor Philip Lowe has paused – briefly – its upward march on interest rates, but the fate of the first-term Albanese government hinges on whether Labor’s “softly softly” management of the inflation crisis is seen to work.