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ACTU concedes on 5pc wage growth

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ACTU secretary Sally McManus says low-paid workers should keep pushing for wage rises that match inflation, claiming that the rising cost of living is being driven by profits, not pay increases, and that warnings of a 1970s-style wage price spiral are “total Boomer fantasy”.

Dismissing the Reserve Bank of Australia’s view that wage increases should be kept to 3.5 per cent to help lower inflation, Ms McManus said wages were not a risk in the modern era devoid of centralised wage-fixing.

Sally McManus says there are underlying problems with wage growth unrelated to the inflation spike.  Alex Ellinghausen

The wage price index was not even close to 3.5 per cent, “let alone 5 per cent, let alone 7 per cent”, the current and forecast headline inflation levels.

“And so to think somehow that the system is going to deliver across-the-board pay increases of 5 or 7 per cent is Boomer fantasy land,” she said.

“Not realising that whole system would be incapable of delivering that. We do not have centralised bargaining in this country. It would not be possible for that to happen.”

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Ms McManus ruffled feathers by accusing the central bank’s board of having “very little idea how things work” when it comes to how wages are set.

She suggested that the Labor government appoint union expertise to the RBA board.

Review into the central bank

The ACTU was last on the RBA board during the Hawke/Keating years when Bill Kelty was a member, but it is understood the Albanese government will want the make-up of the board to be a key part of the review it is planning into the central bank.

As well, Treasurer Jim Chalmers will have the opportunity to appoint two new board members over the next year, when the terms of Fortescue Metals Group deputy chairman Mark Barnaba and businesswoman Wendy Craik expire in August 2022 and May 2023 respectively.

Roger Corbett, a former RBA board member and chief executive of Woolworths, said it appeared Ms McManus did not understand the experience of the RBA board members.

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“Many people on the board have, in fact, run businesses and negotiated wages,” Mr Corbett said.

“In my experience on the Reserve Bank board, there was a wide range of skills, very carefully selected by the government, Treasury and the bank to represent the community at large, including the business community.”

Speaking anonymously, a former RBA board member said: “It is obvious that most RBA board members have or have had roles which have necessitated them being very involved in wage negotiations and, even more relevantly, having to manage the consequences of cost pressures.

“McManus has never had to produce an operating profit or justify any major capital investments. Producing enough profit to justify capital investments almost inevitably requires recouping cost increases.”

But Bernie Fraser, who was RBA governor during the Hawke-Keating Labor government, said: “The business sector is very keen to put a cap on wages below the inflation rate, but no desire to put a cap on profits.”

Mr Fraser said Mr Kelty was the most reliable forecaster of wages during his time on the RBA board and that it was a shame unionists had been excluded from the board since the Howard-Costello government.

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“I was thinking back about Kelty and how bloody great it would be to have someone from the ACTU such as Sally McManus on there,” he said.

“It would be better than some academic pontificating on things.”

Ms McManus took issue with the interpretation, including by Labor, of comments this week by Reserve Bank Governor Philip Lowe in which he warned that “if wage increases become common in the 4 to 5 per cent range, then it is going to be harder to return inflation to 2.5 per cent”.

While pay rises above 3.5 per cent “for a short period of time” were possible, he warned that a wage price spiral would force aggressive rate rises that would slow the economy and push unemployment higher.

Ms McManus said the country’s wealth was not being shared fairly and wages had a long way to go before the wage price index hit even 3.5 per cent.

“Business profits are driving inflation, not workers’ pay increases. Businesses are passing on price increases and some are gouging.”

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Electrical Trades Union acting national secretary Michael Wright also lashed out at the Reserve Bank governor’s comments.

“Where is the RBA when it comes to corporate profits? Where is the RBA excoriating energy companies for gouging the market for massive profits? The resources sector for its mega profits? Why is the governor calling for wage restraint from workers when wages as a share of national income has never been lower?”

Lack of diversity

Ms McManus said the RBA board lacked the diversity needed on wages

“That board doesn’t have anyone there who participates in negotiations for wages or the wage-setting system from the workers’ side,” she said.

“And that’s a pretty big problem if you’re, you know, making assumptions or trying to understand trying to analyse how things work.”

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RBA board member Alison Watkins, speaking in a personal capacity, said: “Sluggish wage growth has been a concern and it’s good to see wages are now on the move, especially for our low-paid roles.

“However, it’s very clear we need to strike the balance.

“It’s dangerous to now adopt a quasi-wage indexation mentality because the risk is we chase our tails and perpetuate high rates of inflation.”

Australian National University economist and former RBA board member Warwick McKibbin said how wages were negotiated were “irrelevant for the impact on inflation”.

“Wages are an input cost like energy,” Professor McKibbin said.

“I don’t need to know how energy is generated to work out how energy price shocks affect inflation.”

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Economists pushing for an independent review of the RBA have lobbied for the appointment of more professional economists who have the technical understanding of the challenge faced by Mr Lowe, deputy governor Michele Bullock and Treasury Secretary Steven Kennedy on the board.

The current nine-member board has five business people including Carol Schwartz, Carolyn Hewson (who is also an economist), Mr Barnaba, Ms Craik and Ms Watkins who is a former Graincorp and Coca-Cola Amatil CEO.

Economist Ian Harper is the dean of Melbourne Business School, a sizeable enterprise. He is also a former head of the Fair Pay Commission.

Phillip Coorey is the political editor based in Canberra. He is a two-time winner of the Paul Lyneham award for press gallery excellence. Connect with Phillip on Facebook and Twitter. Email Phillip at pcoorey@afr.com
John Kehoe is Economics editor at Parliament House, Canberra. He writes on economics, politics and business. John was Washington correspondent covering Donald Trump’s election. He joined the Financial Review in 2008 from Treasury. Connect with John on Twitter. Email John at jkehoe@afr.com

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