The Department of Treasury has warned consumers that a pay rise is not on the cards, despite likely increases to the cost of living.
According to the budget estimates, household consumption will lift by 5.5 per cent in 2021-22 and 4 per cent in 2022-23, which will expand the economy and government revenues through taxes, including the GST.
In fact, while failing to set policies in place to lift wages, the same department is predicting a huge influx in spending, estimating the same Aussies who increased their safety buffers during the pandemic will need to do the heavy lifting. But, in return for spurring economic growth by supporting business, Aussies won't be pocketing a pay rise any time soon.
“We expect the strength of household balance sheets, reflecting strong income growth and high saving rates in 2020, together with recent strong house price growth, to support above‑average growth in consumption in the near term,” secretary to the Australian Treasury Dr Steven Kennedy said during a Senate enquiry.
While relying on consumers to spend their savings, Dr Kennedy said withdrawal of stimulus packages will see parts of the CPI rise, but wages will not match this incline.
“In the near term, we are likely to see a temporary rise in prices due to the unwinding of childcare and other subsidies and the recovery in the global economy. By contrast, short-term wage expectations remain low,” Dr Kennedy said.
He highlighted that despite a strong rebound in unemployment, with record participation levels and hours worked, the unemployment rate still needs to fall before employers opt for pay rises.
“Since our last hearing, Treasury has released a paper estimating a lower Non-Accelerating Inflation Rate of Unemployment (NAIRU) of between 4½ and 5 per cent.
“This means that we now expect the unemployment rate will need to be lower than previously thought before we see a substantial pick-up in wages,” the economist continued.
Trying to pin low wages on low inflation, Dr Kennedy said inflation acts as an anchor for workers looking to negotiate a higher price.
“All else equal, lower inflation expectations lead to lower growth in nominal wages. The recent period of low inflation has contributed to lower inflation expectations and, therefore, lower nominal wage growth.”
“All things considered, we have taken a relatively cautious view and forecast a pick-up in wages from 2022-23, when we expect the unemployment rate to fall within Treasury’s estimated band for the NAIRU, but not before,” Dr Kennedy said.
While noting the need for employment to improve, Dr Kennedy also told the Senate estimates on Tuesday morning that 56,000 workers whose jobs were previously sustained by JobKeeper are now unemployed.
“These data suggested that up to 40,000 former JobKeeper workers lost employment in the first two weeks following the end of JobKeeper,” Dr Kennedy said. “We now have an extra two weeks of data, and across the four weeks, around 56,000 former JobKeeper workers lost employment.
“In terms of the net labour market impact, it’s worth remembering that around 400,000 people move into and out of employment in a normal month, and we would expect many of those who lost employment at the end of JobKeeper to regain employment in coming weeks,” Dr Kennedy concluded.
