Wages growth to hit 15 year high of four per cent
The earlier and stronger return to real wages growth in early 2024 will be the first time in three years that pay packets have outpaced the cost of living.
Annual wages growth is forecast to reach 4 per cent next financial year, the fastest rate in 15 years, with an earlier than expected return to real wages growth tipped for early 2024.
While nominal wages growth is expected to build on recent quarterly increases, the government insisted there were “no signs of a wage-price spiral developing and medium-term inflation expectations remain well anchored”.
Inflation is forecast to be 6 per cent at June 30 this year, falling to 3.25 per cent over the next 12 months and 2.75 per cent by mid-2025.
Over the same period, wages are tipped to grow by 3.75 per cent in the year to June 30, 4 per cent next financial year before dropping to 3.25 per cent in 2024-25.
While wages growth is moderating, inflation is falling at the same time, resulting in forecast real wages growth over the next two financial years of 0.75 per cent and 0. 5 per cent respectively.
According to Treasury, the Fair Work Commission’s minimum wages decisions and a government–funded 15 per cent pay rise for aged-care workers would increase the relative wages of low-paid workers. “These decisions are expected to add around an additional half of a percentage point to wage growth in 2023–24, and provide support for Australia’s low-paid workers who are disproportionately impacted by price increases for essential goods and services,” it says. Treasury has assumed the commission will adopt a similar approach to last year when the lowest-paid workers received rises in line with the inflation rate.
“The acceleration in wage growth also reflects the lagged effect of the current tight labour market,” Treasury says.
“Market-sensitive individual agreements have been the biggest contributor to the pick-up in aggregate wages to date, but momentum is expected to wane as the labour market eases. A lift in public sector wages growth and the renegotiation of multi-year enterprise bargaining agreements will partially offset this. Broader measures of wages that include bonuses, which tend to be more responsive to labour market conditions, are expected to see a more pronounced cycle.
“With inflation moderating and wages picking up, positive annual real wage growth is expected to return by early 2024, increasing to 0.75 per cent the June quarter of 2024. This is slightly earlier than anticipated, and an upgrade from the October budget.”
Treasury described the 3.25 per cent wage growth forecast for 2024-25 as “robust”, and “materially faster than the outcomes achieved in the decade prior to the pandemic”.
“This pick-up in wages growth remains consistent with inflation returning to the target band in 2024–25,” it said.
The earlier and stronger return to real wages growth in early 2024 will be the first time in three years that pay packets have outpaced the cost of living.
The government said the earlier return to real wages growth was largely due to the reduction in inflation from energy bill subsidies.
In his budget speech, Treasurer Jim Chalmers said the government came to office “promising to get wages moving again and they’re now growing at their fastest rate since 2012”.