The Age 16 June 2022
We’ve suffered the pandemic and months of lockdowns. Now we have to face the harsh reality of life without lettuce.
Ron Mather, Melbourne
Lettuce pray.
Reverend Jim Pilmer, Camberwell
Lettuce or cabbage? Which will Peter Dutton wield in parliament when he blames our economic woes on the new government?
Bernd Rieve, Brighton
The Australian - Letters
Albanese government paying too high a price on wage increases
The Albanese government, seeking popularity by formally supporting a 5.1 per cent increase in the minimum wage, has opened a Pandora’s box in wage demands by unions – a move that must increase inflationary pressures and negatively impact the cost of living (“Unions to chase 5 per cent plus wage claims”, 20/6).
The government’s move was irresponsible and will likely cause untold grief to small business that will, in the end, impact households through job losses. Employment Minister Tony Burke has his head in the sand if he seriously believes otherwise.
Whether the Fair Work Commission will approve a flow-on of the minimum wage increase to awards remains to be seen but knowing the new government’s attitude it is more likely to be supportive. The wage-inflation spiral has begun in earnest; the losers are all of us.
John George, Terrigal, NSW
During the Whitlam years the company I worked for had about 20 employees. The quarterly wage rise granted translated to four lost jobs a year.
I wonder if Employment Minister Tony Burke understands that the 5 per cent is just the starting point; payroll tax, superannuation contribution, leave loadings and insurance are all assessed at the new pay rate.
A substantial pay rise may be justified but it’s more than likely that one worker’s pay rise will be another’s job.
Bruce Collison, Banks, ACT
Analysis: Inflation
Inflation, cost-of-living, supply chains, declining wages, climate impacts and inequality are leading us towards global unrest
By Stan Grant
Posted , updated
A man pushes his cart through flood waters in Bangladesh and around the world shortages of food and fuel have sparked violent unrest.(AP: Mahmud Hossain Opu)
Bob Marley said it best: a hungry man is an angry man.
Hungry people have driven revolution. Economic strife is a harbinger of unrest.
The Russian Revolution in 1917 was triggered by many things but not the least was people hungry and angry. Peasants had been conscripted into the army to fight World War One. There was a labour shortage and that disrupted supply chains. Workers were crippled by runaway inflation. Living conditions deteriorated.
By the time the 300-year Romanov dynasty was toppled the Russian economy had collapsed. The Bolsheviks didn't make things any better. Inflation continued to spiral out of control.
History tells us inflation is dangerous and now it is back.
There is a link between hunger and unrest
The Arab Spring of a decade ago was described as the "hunger revolution" and was triggered by a Tunisian street vendor, Mohamed Bouazizi, who set himself on fire when his fruit cart was seized.
An article this week in Foreign Policy magazine pointed to data reminding us that "the number of food riots globally jumped a whopping 250 per cent above their average over the 2005-2011 period".
This generated conflicts in Libya, Syria, and Yemen and, Foreign Policy points out, contributed to the rise of Islamic State.
We are seeing hungry angry people again. In Sri Lanka shortages of food and fuel have sparked violent unrest. It defaulted on its foreign debt in May and there are warnings that other countries like Pakistan, Tunisia, Ethiopia, Ghana and El Salvador could follow.
South Africa, Jordan, Mozambique are all bracing for economically driven social unrest.
A cost of living crisis has UK authorities on alert. Police numbers are being bolstered fearing more disturbance.
There are warnings of a return to Thatcher-era riots of the explosive summer of 1981 in the wake of recession.
The world is in the grip of a perfect storm. Food prices have been rising for two years after the impact of the COVID pandemic and disruptive weather patterns.
Russia's invasion of Ukraine has added to the crisis. Supplies of grains and fuel have been hit. Ukraine is considered one of the world's breadbaskets, its farmers produce enough grain to feed hundreds of millions of people. The war has choked off those supplies.
Inflation is skyrocketing into double digits in many countries.
The head of the United Nations World Food Programme, David Beasley, said this week that "if people can't feed their children and their families, then the politics unsettles".
Beasley said the UN has already had to start rationing food supplies. Harsh choices are being made to divert food from hungry people to starving people.
"If we're not there with a safety net program, then the political extremists or whatever the case may be, will exploit that," Beasley said. "Next thing you know, you've got riots, famine, destabilisation and then mass migration by necessity."
He warned that in 2023 the world will see mass food shortages. Beasley said five years ago around 80 million people were "marching toward starvation" that number nearly doubled during COVID now the number of people facing critical food shortage has doubled again to over 270 million and tens of millions are facing famine.
It all puts our own travails in Australia into perspective. We may complain about a shortage of lettuce and having to make do with cabbage on our burgers, but we are not starving.
Beasley is calling on rich countries to do more. But of course everything is relative and wealthy countries are dealing with their own angry people.
Australia has not escaped
Here Australians are being warned to brace for spiking inflation, ever higher interest rates and falling asset prices.
We are being told to wind back expectations of wage rises.
And it is the most vulnerable who will be hit the hardest. Inflation is a tax on the poor who are already facing mortgage stress or rental crisis.
The rich have a buffer. They have been stashing away cash. Economists say there is a global savings glut. Wealthier people have been hoarding money rather than spending or investing.
The savings of the richest 10 per cent in the United States have far outstripped the savings of the remaining 90 per cent.
The savings glut has forced down interest rates and pushed up housing prices. But now interest rates are on the move upwards, the rich can divest or cushion the blow, poorer people will be left with harder choices.
And inequality breeds resentment
Resentment is inevitable. In a place like America, that will feed into politics. This is fertile ground for political populism, a resurgence of "Trumpism".
Inequality is a cancer on American democracy. Growing inequality has fractured America, with the working poor left behind while power and wealth is concentrated in the hands of what has been dubbed an "American meritocracy".
The financial crash of 2008 left the country poorer and deeply scarred: ordinary Americans lost their homes and their jobs, while rich bankers got bailed out.
Economists Anne Case and Angus Deaton reveal a lost generation of poorer, sicker, Americans chronicle in their book Deaths of Despair and the Future of Capitalism. It is an America of "haves and have nots"; an America of meaningless or no work, of declining wages and shattered families.
There is no faith in American capitalism, which, Case and Deaton write, "looks more like a racket" to make the rich richer.
The world has been battered by decades of terrorism, war, financial collapse, a pandemic and now when people were hoping for a reprieve from years of lockdown, death and despair we face a world of war in Ukraine, food shortages, spiralling prices and social unrest.
Rising inflation is not just a question of whether we renew our television streaming subscriptions; it is a question of whether millions of people have enough food to eat. It is life and death.
It will lead to more desperation, more disruption, more mass movement of people and inevitably anger.
Political opportunists will exploit this for their own ends. And governments desperate to appease people – or quite rightly try to soften the economic blow – may pursue short term policies that only prolong or exacerbate inflation and economic stress.
We are only half way through 2022 and already we are looking ahead to darker days in 2023.
Bob Marley warned that "them belly full, but we hungry", the poet William Blake cast it in even more apocalyptic terms: "A dog starved at his master's gate predicts the ruin of the state."
Stan Grant is the ABC's international affairs analyst and presents China Tonight on Monday at 9:35pm on ABC TV, and Tuesday at 8pm on the ABC News Channel, and a co-presenter of Q+A on Thursday at 8.30pm.
The Australian - Editorial
Soaring living costs need a balanced policy response EDITORIAL
Shoppers paying $12.99 for a punnet of strawberries or a single lettuce would not be surprised by the Electrical Trades Union’s push for a 6 per cent pay rise for its workers in the power and commercial construction sectors. Inflation is 5.1 per cent and Treasury secretary Steven Kennedy believes it will climb “potentially well above 6 per cent and remain there for the rest of this year”. Former Reserve Bank governor Ian Macfarlane predicts it will hit 7 or 8 per cent.
ETU acting national secretary Michael Wright says workers have been “living through a wages recession” and the union will not accept members’ wages going backwards.
The Albanese government has helped pave the way for such a push, backing a 5.1 per cent pay rise for low-paid workers on minimum and award wages, such as shop assistants, cleaners and workers in the care economy. But a 6 per cent pay jump in a single year in the commercial construction and power sectors would carry an economic risk. It would drive up the price of major infrastructure developments and power. Locking in such a precedent for workers earning more than minimum wages could fuel inflation and interest rates, potentially causing additional hardships. For the good of the nation, Anthony Albanese and Jim Chalmers must discourage unions pursuing wage breakouts. That will be difficult in light of Labor’s rhetoric during the election, but it is vital jobs are protected. Where they occur, significant wage rises should accompany productivity gains. Maintaining the 48-year record low unemployment is important. Not only is it good for national morale and social cohesion, it has reduced welfare drain on taxpayers at a time when the budget needs serious repair.
Josh Frydenberg’s adroit economic management ensured most Australians dodged the Covid financial bullet. But as economist Chris Richardson said this week: “Oh, no – here comes the interest rate bullet.” The challenge facing the Albanese government is being compounded by the power crisis and the impact of flooding on food prices. Such rapidly changing conditions demand transformed but balanced economic policies. Maintaining business and individuals’ confidence – the latter has declined sharply in recent weeks – will be important to protect consumer spending, jobs, investment and growth.
As private sector economists such as the Commonwealth Bank’s Gareth Aird warned this week, the RBA’s determination to quash inflation will prove successful, but higher interest rates are likely to come with a price. That is, lower demand, slower growth, a smaller economy, and unemployment probably “grinding upwards” next year.
Striking the right policy balance will be an exacting challenge for the government so early in its term after nine years in opposition. As well as encouraging wage restraint on the part of unions, the government must practise it in public spending. Amid rising mortgage repayments, rents, winter power bills, petrol and grocery prices, the Treasurer, regardless of political sensitivities that are irrelevant at this stage of the electoral cycle, must resist the temptation to boost compensation for rising living costs. Doing so from the public purse would fuel the inflationary spiral.
Most households, fortunately, are in a position to cope with current economic pressures. The household saving rate remains higher than it was before the pandemic, as RBA governor Philip Lowe pointed out on Tuesday. Many households have built up financial buffers, including getting ahead on their mortgages. Much will depend in coming months on the willingness of these households to spend the $270bn in additional cash savings accumulated during the pandemic. Additional cost-of-living relief measures in the October budget, if any, should be minimal and tightly targeted. Looking to the longer term, the government must not waste the opportunity to address capacity constraints, especially boosting gas supplies by ensuring states such as Victoria bring new fields on stream.
Talking down the economy during what is still a time of prosperity for many – and not just the wealthy – would be a serious mistake. As the RBA board noted this week, increasing interest rates is “a further step in the withdrawal of the extraordinary monetary support that was put in place to help the economy during the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed.” Fair enough.
As RBA board member Ian Harper said this week, the 0.5-percentage-point rate rise was aimed at preventing a potential “wage-price spiral”, where workers’ demands for higher pay in response to climbing inflation create a self-reinforcing cycle.
Homebuyers and investors understand the risks associated with borrowing money and investing. Inflation is expected to rise for now. But the RBA expects it to “decline back towards the 2-3 per cent range next year”. Despite the pessimistic outlook, Mr Aird said: “Talk of a recession is premature … we don’t foresee a bust.” The nation’s terms of trade remain high, major infrastructure projects are under way, the jobs market is tight. The emerging slowdown, as Mr Aird warned, could even see the RBA move into interest rate cuts in the second half of 2023.
Will a 5 per cent pay rise for workers lift the cost of your coffee and petrol by the same amount?
Will a 5 per cent pay rise for workers lift the cost of your coffee and petrol by the same amount?
By business reporter Nassim Khadem. ABC.
Posted , updated
The headlines have been frightening.
They warn that consumers may have to pay $7 for a coffee and $3 for a litre of unleaded petrol by year's end.
While these predictions are largely due to factors such as high shipping costs and international movements in the price of oil, political debate in recent weeks has shifted to what impact a lift in the pay packets of workers could have on the costs of everyday goods and services.
Business groups and some of our political leaders have been suggesting that if the minimum wage rises by about 5 per cent, to keep in line with the soaring cost of living, that will in turn result in far higher prices for everyday goods and services.
Labor leader Anthony Albanese backed a pay rise of 5.1 per cent to keep up with inflation, saying without it, it will result in an effective pay cut for those on the minimum wage.
Labor leader Anthony Albanese has backed a pay rise for workers of 5.1 per cent to keep up with inflation.(ABC News: Nick Haggarty)
"What we are talking about here is the lowest-paid workers in Australia … workers who are paid $20.33 an hour, to be paid $1 extra. That is what this debate is about," Mr Albanese said.
But Prime Minister Scott Morrison has argued that would hurt the economy, as an increase of that magnitude could send the economy into an inflationary spiral.
On Tuesday, speaking about the party's plan to allow first home buyers to draw superannuation to buy homes, Mr Morrison told reporters "wage rises are good things and we want to see the wage rises occur", but added that should be "on a sustainable basis" and the best way for that to happen was to get unemployment down and ensure the economy grows.
A new report by The Australia Institute being released today aims to put an actual figure on how much those goods and services could rise under a 5 per cent lift in wages.
It suggests that boosting workers' wages by 5 per cent — for all workers, not just those on the minimum wage ——would lead to an increase in prices across the economy of about 2 per cent.
This would mean a 5 per cent wage increase could mean a $4 cup of coffee should only increase by about 9 cents.
"There is just no way that a 5 per cent increase in all wages, let alone a 5 per cent increase in the minimum wage alone, can lead to price increases of anything like 5 per cent," says one of the report's authors, The Australia Institute's chief economist Richard Denniss.
He argues that businesses are exaggerating the impact of wage rises on their costs as an excuse to boost profits.
Wage rises won't result in higher interest rates: report
The report suggests that wages account for about 25 per cent of business costs in Australia, which means that for an average firm, a 5 per cent increase in their total wages bill would only push up costs by 1.3 per cent.
Even in relatively labour-intensive industries like retail, wages only account for 38.8 per cent of total costs, meaning a 5 per cent increase in all retail wages would see costs rise by only 1.9 per cent.
In sectors like retail, wages only account for 38.8 per cent of total costs, meaning a 5 per cent increase in all retail wages would see costs rise by 1.9 per cent.(Supplied: Australia Institute)
And since wages account for only 35 per cent of the food and beverage service industry, a $4 coffee would only need to rise by 9 cents to cover increased wages.
He said the analysis likely overstates the impact of a wage rise on costs for a number of reasons including that "we ignore the benefits to employers of labour productivity growth, which lowers labour costs by over 1 per cent per year, and we assume that all of the increased prices in the supply chain happen instantly rather than being spread out over the next few years."
But the report shows the inflationary impact is higher for the most labour-intensive industries like education, healthcare and residential care.
ACTU Secretary Sally McManus says they will fight for a 5.5 per cent wage increase at the Annual Wage Review hearing at the Fair Work Commission today.
She says this increase is essential for boosting the wages of 1 in 4 workers who rely on the review for wage growth, and would lift the Adult Minimum Wage from $20.33 to $21.45 per hour, $772.60 to $815.09 per week and $40,175.20 to $42,384.84 a year.
"Minimum wage workers spend every dollar they earn, and avoiding ongoing real pay cuts is essential for ensuring workers keep money flowing into small businesses," she said.
Forecasts for wages growth
On Wednesday the ABS released its latest wage price index data, and in June the Fair Work Commission will release its minimum wage decision.
Most economists had correctly predicted a lift in the quarterly and annual figure, and did not expect it would be so high that it would force the Reserve Bank to hike rates more aggressively than expected.
ANZ senior economist Catherine Birch says there are huge economic benefits in ensuring that those on low wages do not see their wages fall by as much as they would without a solid increase in the minimum wage.
"If there was the 5.1 per cent increase in the minimum wage that Mr Albanese has been talking about, there would be some inflationary effects, but the increase in inflation would be smaller than increase in nominal wages [that is the increase without adjusting for inflation]," she says.
