Jenny McAllister is a NSW Labor Senator
Last week the Reserve Bank of Australia (RBA) issued its 2017-18 corporate plan. While this may not have been marked in everyone’s calendar, it makes for interesting reading, because (amongst other things) it sets out what the RBA thinks are the key risks for its monetary policy functions in the year ahead.
The plan draws attention to two sets of risks that I think are particularly interesting because of what they tell us about the state of economic leadership in Australia.
The first interesting risk is slow wages growth. The RBA identified (with classic understatement) that “wage growth has declined to low levels in recent years”. In fact, over the last year, overall annual Wage Price Index growth has been at almost exactly 1.9%. This is the lowest figure recorded by the ABS since it began the data series in the 90s. Private sector real wages growth this year has been negative. In other words, private sector wage earners are worse off now than they were 12 months ago
The second interesting risk identified by the RBA is household debt. The RBA noted a “substantial build up” in household debt and recognised that “the high debt levels mean that monetary policy’s ability to stimulate growth may be more limited than in the past.” We should be clear about what this refers to –housing debt is now so high that the Reserve Bank is worried it may not be able to use interest rates to stave off recession.
The RBA is right to be concerned about debt. We are taking on more: average home debt doubled in real terms since the early 2000s. We are also taking longer to pay it off – since 1990 the number of people with mortgage debt has doubled for the 45 to 55s, and tripled for the 55s to 65s. People who can’t afford this level of debt are being locked out of the housing market. The rate of home ownership for people under 40 is almost 50% less than in the early 2000s.
Wages growth and housing affordability – these are two very interesting risks to be highlighted by the RBA, because they are risks that unequivocally are influenced by government policy.
There is a lot about the economy that you can’t control in government – commodity price spikes, global recessions, or a cyclone that wipes out an entire banana crop. However you can do something about wages and housing affordability.
The government has not only refused to act–they’ve refused to even admit that wages and housing are a problem. We should never forget that Joe Hockey’s solution for housing affordability was to get a better job, and that MathaisCormann has denied for years that there was a demand problem in housing. We should never forget that at the same time the RBA is talking about the problems posed by slow wages growth, this government has been putting reducing incomes for the most vulnerable:
Its only solution for delivering ‘jobs and growth’ seems to be corporate tax cuts that will deliver nothing except more dividends and share buybacks. The treasurer is still filling out the practice exercises from the back of a 1987 economics textbook. Today’s economic problems are different – even the IMF recognises that slow wages growth and inequality is holding economies back!
The problem is this government is so fixated on fighting the class war from decades ago that it can’t act on the issues affecting people today – housing affordability, slow wages growth, even electricity prices. We know what the solutions are to these problems - reform to negative gearing, a fairer tax system, and empowering workers to bargain for higher wages. Unfortunately, we also know this government will never have the vision to put them in place.
This piece is an edited version of a speech delivered by Senator McAllister in Federal Parliament on Tuesday 5 September 2017