Election 2022: Albanese’s loose rhetoric on wages spooks the horses

Anthony Albanese campaigns in Willoughby in Sydney’s north on Wednesday. Picture: Sam Ruttyn

Trouble comes cheap and leaves expensive, Richard Ford wrote in Rock Springs, an adage that has shadowed Anthony Albanese since his stumbles on the first day of campaigning.

The Labor leader has declared he “absolutely” backs a 5.1 per cent wage hike, to stop workers falling behind amid the inflation surge. “I believe the minimum wage should at least keep up with the cost of living,” said the Opposition Leader, who, after all, is the standard bearer of the political wing of the labour movement.

But Albanese didn’t immediately join the dots about what that could mean for all the other parts of our interrelated economy and key institutions, or raising expectations should he win on May 21. A push here, causes a push there, leads to a rise over there and eventually you have not only an unwanted change in inflation psychology and pay expectations, but a wage-price spiral.

Frankly, no one wants that: it’s an economy killer, hitting those who can least absorb the shocks.

For years, we had the opposite problem, with sub-2 per cent inflation and miserly wage rises the Reserve Bank kept hoping would shift upwards. The dynamic has changed and the RBA started its rate-hike journey last week, “pre-emptively”, so the psychology wouldn’t shift “in a troubling way”, according to central bank governor Philip Lowe.

“I hope that people understand that we will take the necessary steps to make sure that inflation in Australia does not become a persistent problem,” he said after raising the RBA’s cash rate for the first time since 2010.

Albanese claims his position that a 5.1 per cent minimum wage rise is “perfectly consistent” with the RBA position on wages. But, in case he hadn’t noticed, the bank is now chastened, ultra-­cautious, and in full inflation-fighting mode.

As economists noted, lifting wages by 5 per cent “all else being equal, means higher inflation”, and that means higher interest rates and second and third-round effects on the economy.

The Opposition Leader tried to backtrack and sprinkle a bit of productivity magic dust into his wage equation, eventually pointing to a speech he gave a week ago on how Labor would improve it.

But in it he lamely shied away from tax, competition policy and workplace reforms, and spruiked a bit more of the late Silver Bodgie’s consensus and summitry.

In any case, the startled wage-inflation horse was now running down the street, scaring every small business owner and beyond. Sure, there is a high degree of theatre and predictable overkill from the Coalition as election day looms. Morrison, too, should ­resist over-egging the wages issue, lest he be seen as stingy towards workers on $20.33 an hour at a time of fat profits and falling ­unemployment.

If leaders had actually taken notice of what Lowe has been saying for years, they’d be leading a nuanced national conversation.

“Stronger productivity growth is good,” Lowe told reporters last week at the end of a Q&A session. “It’s going to mean higher growth in real wages, more resources available for the government to spend on goods and services for the community. It will mean a higher equilibrium level of interest rates, which I think it would be good and it would mean stronger asset values and a wealthier and more prosperous society.”

As every prime minister and treasurer learns, often the hard way, words are live rounds in the economic sphere. Albanese, first elected in 1996, has never faced such scrutiny and, while he’s not putting up a big ­policy agenda, the would-be PM keeps offering the media pack the scent of trouble. They were feral on Wednesday and it could prove to be expensive.