My Blog

Category: Macroeconomics

  • Budget briefing paper 2025-2026

    Education & Training, Gender at Work, Industry & Sector Policies, Macroeconomics, Social Security & Welfare, Tax, Spending & the Budget, Wages & Entitlements

    Budget briefing paper 2025-2026

    by Greg Jericho, Charlie Joyce, Lisa Heap and Fiona Macdonald

    Authors

    Greg Jericho

    Chief Economist

    Charlie Joyce

    Researcher

    Lisa Heap

    Senior Researcher

    Fiona Macdonald

    Acting Director, Centre for Future Work

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget.

    As expected with a Federal election looming, the budget is not a horror one of austerity. However, the 2025-2026 budget is characterised by the absence of any significant initiatives.  There is very little in this budget that is new other than the surprise tax cuts, which are welcome given they benefit mostly those on low-incomes. There are continuing investments in some key areas supporting wages growth, where it is sorely needed, and rebuilding important areas of public good. However, there remains much that needs to be done in the next parliament.

    This briefing paper reviews some of the main features of the budget, focusing on those aspects targeting and impacting on workers, working lives and labour markets.

    The establishment of a $1 billion Green Iron Investment Fund to provide capital grants to green iron projects is a significant investment. With $500 million of this fund going to the troubled Whyalla steelworks this investment should ensure ongoing integrity in the management of this vital industrial asset. We believe the government should take a significant ongoing stake in the ownership of the Whyalla steelworks. The $2 billion Green Aluminium Production Credit, to incentivise Australian aluminium smelters to switch to renewable electricity before 2036, is a necessary and welcome policy to assist the transition to a low emissions economy. Unfortunately, the credit is not available until 2028-2029.

    New and ongoing support for students in TAFE and in higher education are important cost-of-living measures while also making education and training more inclusive and accessible. There is some new funding for previously announced initiatives that support workers and wages growth and some funding for new wage increases in the female-dominated, and low-paid, aged care and early childhood education and care sectors; demonstrating the government’s commitment to addressing long-standing undervaluation of feminised care occupations. Continuing government support will be needed as the current Fair Work Commission review of awards to address undervaluation progresses.

    Other reforms in ECEC, along with previously announced changes to paid parental leave and carer payments, provide welcome, but belated, support for working parents and carers. It is disappointing to see that the opportunity has been missed to raise Job Seeker and Youth Allowances from their grossly inadequate levels.



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  • The Limits of CGE Modelling

    Macroeconomics

    The Limits of CGE Modelling

    The surprising assumptions behind computable general equilibrium models and the implications of not knowing about them
    by Richard Denniss and Matt Saunders

    Authors

    Richard Denniss

    co-Chief Executive Officer

    Matt Saunders

    Senior Economist

    Economic modelling is a central element of economic and policy debate in Australia. Yet the assumptions that underpin the most commonly used macroeconomic models are rarely discussed even though they fundamentally influence model results. Too often, models are used as a tool of persuasion rather than providing objective policy advice.



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  • Budget 2024-25: Resists Austerity, Reduces Inflation, Targets Wage Gains

    Macroeconomics, Public Sector, Procurement & Privatisation, Wages & Entitlements

    Budget 2024-25: Resists Austerity, Reduces Inflation, Targets Wage Gains

    Important support to help with cost-of-living challenges, but more needed
    by Greg Jericho, Lisa Heap, Charlie Joyce, Fiona Macdonald and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Lisa Heap

    Senior Researcher

    Charlie Joyce

    Researcher

    Fiona Macdonald

    Acting Director, Centre for Future Work

    Jim Stanford

    Commonwealth Treasurer Jim Chalmers delivered his 2024-25 budget to Parliament. While it booked a surplus for 2023-24 (the second consecutive surplus), it increased total spending for future years, and forecasts continued small deficits. In the wake of the economic slowdown resulting from RBA interest rate hikes, this new spending is needed and appropriate.

    Targeted cost of living measures will directly reduce inflation in some areas (like energy and rents), while helping working Australians deal with higher prices in others (including reworked State 3 tax cuts, and support for higher wages for ECEC and aged care workers). Unlike previous years, the budget is projecting real wage gains in coming years that are actually likely to materialise — however, the damage from recent real wage cuts will take several years to repair, and further support for strong wage growth will be required, from both fiscal policy and industrial laws. The budget also spelled out initial steps in the government’s Future Made in Australia strategy to build renewable energy and related manufacturing industries; these steps are welcome but need to be expanded, and accompanied by strong and consistent measures to accelerate the phase-out of fossil fuels.

    Our team of researchers at the Centre for Future Work has parsed the budget, focusing on its impacts on work, wages, and labour markets. Please read our full briefing report.



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  • The Irrelevance of Minimum Wages to Future Inflation

    Labour Standards & Workers’ Rights, Macroeconomics, Unions & Collective Bargaining

    The Irrelevance of Minimum Wages to Future Inflation

    Minimum and award wages should grow by 5 to 10 per cent this year
    by Jim Stanford and Greg Jericho

    Authors

    Jim Stanford

    Greg Jericho

    Chief Economist

    Media release



    Increasing minimum wage would not drive inflation up: new report

    A significant increase to the minimum wage, and accompanying increases to award rates, would not have a significant effect on inflation, according to new analysis by the Centre for Future Work at the Australia Institute.
    The analysis examines the correlation between minimum wage increases and inflation going back to 1997, and it finds no consistent link between minimum wage increases and inflation.

    The report, co-authored by Greg Jericho (Policy Director) and Jim Stanford (Director), finds that a minimum wage rise of between five and 10 per cent in the Fair Work’s Annual Wage Review, due in June, is needed to restore the real buying power of low-paid workers to pre-pandemic trends, but would not significantly affect headline inflation.

    Key findings of the report include:

    • Last year’s decision, which lifted the minimum wage by 8.65 per cent and other award wages by 5.75 per cent, offset some but not all of the effects of recent inflation on real earnings for low-wage workers.
    • At the same time, inflation fell by 3 full percentage points.
    • There has been no significant correlation between rises in the minimum wage and inflation since 1997.
    • Raising wages by 5 to 10 per cent this year would offset recent inflation and restore the pre-pandemic trend in real wages for award-covered workers.
    • Even if fully passed on by employers, higher award wages would have no significant impact on economy-wide prices.
    • A 10 per cent increase in award wages could be fully offset, with no impact on prices at all, by just a 2 per cent reduction in corporate profits – still leaving profits far above historical levels.

    “Australia’s lowest paid workers have been hardest hit by inflation since Covid. There is a moral imperative to restore quality of life for these Australians and this analysis shows that there is no credible economic reason to deny them,” Jericho said.

    “It’s vital the Fair Work Commission ensure that the minimum wage not only keeps up with inflation, but also grows gradually in real terms – as was the trend before the pandemic.



    Full report




    Factsheet
    Increasing minimum wage would not drive inflation up: new report

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  • Submission to the Reserve Bank Reforms 2023 bill

    Macroeconomics

    Submission to the Reserve Bank Reforms 2023 bill

    by Matt Grudnoff

    Author

    Matt Grudnoff

    Senior Economist

    The Australia Institute argued that the RBA review’s proposal to remove the Australian Parliament’s power to override the RBA on monetary policy is wrong.

    In Australia’s democracy ultimate responsibility for something as important as monetary policy should rest with the parliament. This is because the Australian Parliament is ultimately responsible to the Australian people, while the RBA board is not.



    Full Submission




    Factsheet
    Chalmers is right, the RBA has smashed the economy

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  • Profit-Price Inflation: Theory, International Evidence, and Policy Implications

    Macroeconomics, Unions & Collective Bargaining, Wages & Entitlements

    Profit-Price Inflation: Theory, International Evidence, and Policy Implications

    Profits need to come down to reduce inflation and allow real wages to recover
    by Jim Stanford, Richard Denniss, Matt Grudnoff, Greg Jericho, David Richardson and Matt Saunders

    Authors

    Jim Stanford

    Richard Denniss

    co-Chief Executive Officer

    Matt Grudnoff

    Senior Economist

    Greg Jericho

    Chief Economist

    David Richardson

    Senior Research Fellow

    Matt Saunders

    Senior Economist

    Media release



    Corporate Profits Must Take Hit to Save Workers

    New research confirms that corporate profits in Australia, despite recent moderation, remain well above historic norms, and must fall further in order to allow a rebuilding of real wages in Australia that have been badly damaged by recent inflation.

    The report, compiled by Dr Jim Stanford (Economist and Director of the Centre for Future Work), with contributions from several other economists at the Centre and the Australia Institute, confirms that higher corporate profits still account for most of the rise in economy-wide unit prices in Australia since the pandemic struck.

    The good news is that corporate profits have begun to moderate, as global supply chains are repaired, shortages of strategic commodities dissipate, and consumer purchasing patterns adjust after the pandemic. This has occurred alongside a reduction in inflation of over half since early 2022 (falling from a peak of 8.9% annualised in early 2022 to 3.4% by June 2023). This further confirms the close correlation between corporate profits and inflation — but both profits and inflation need to fall further.

    The report also reviews the methodology and findings of over 35 international studies confirming the existence of profit-led inflation across many industrial countries (including Australia). The methodology and findings of these studies are very similar to that utilised by the Australian Institute and the Centre for Future Work in previous research on profit-led inflation.

    The international research includes reports from numerous established institutions (including the OECD, the IMF, the Bank for International Settlements, many central banks, and the European Commission). Using similar methodology, these institutions came to similar conclusions: namely, that historically high corporate profits were the dominant factor in the initial surge of global inflation after COVID.

    The report was submitted on 21 September as evidence to the ACTU’s Price-Gouging Inquiry, headed by Prof Allan Fels. This Inquiry is gathering documentary evidence on how Australian workers and consumers have faced exploitive and unfair pricing practices by Australian corporations, which have added to recent inflation and undermined real wages. The new report provides macroeconomic evidence confirming the relevance of the Inquiry’s terms of reference.

    Policy-makers in other countries (including Europe and the U.S.) agree that corporate profit margins need to fall further in order to continue reducing inflation, while allowing real wages to recover to pre-pandemic levels. The new report shows this is also true in Australia. Average real wages are presently 6% lower than in mid-2021 (when post-pandemic inflation broke out, led by higher prices and corresponding super-profits in strategic industries like energy, manufacturing, and transportation).

    Wages will thus have to grow significantly faster than inflation for a sustained period of time to recoup those losses. That can occur while still reducing inflation if historically high profit margins are reduced to traditional levels.



    Full report




    Factsheet
    Chalmers is right, the RBA has smashed the economy




    Factsheet
    Would you like a recession with that? New Zealand shows the danger of high interest rates

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  • Commonwealth Budget 2023-24

    Macroeconomics

    Commonwealth Budget 2023-24

    Significant Progress for Workers, Much More to Do
    by Greg Jericho, Fiona Macdonald, Eliza Littleton, Charlie Joyce and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Fiona Macdonald

    Acting Director, Centre for Future Work

    Eliza Littleton

    Senior Economist

    Charlie Joyce

    Researcher

    Jim Stanford

    The Commonwealth government’s 2023-24 budget reveals a progressive government seeking to help lower paid workers and those struggling to pay bills, support public health care, and pursue investments towards a net zero economy. But it is very much a first step, and leaves much more work to be done to repair past harms done to workers, low-income Australians, public services and infrastructure, and the environment.

    This briefing reviews the main features of the budget from the perspective of workers and labour markets. Some of its measures are very positive, such as fiscal support for higher wages for aged care workers, increased JobKeeper benefits, and enhanced Commonwealth Rent Assistance.

    Contrary to concerns that a big-spending budget would exacerbate inflation, this budget will have little impact on overall aggregate demand. In fact, it will pro-actively reduce inflation through its new $500 energy relief plan. Contrary to conservative economists who claim this budget will fuel inflation, in reality the forecasts confirm historically slow growth in public demand in both 2022-23 and 2023-24.

    Despite these positive measures, the budget also contains disappointing aspects. Most importantly, the Stage 3 tax cuts remain on schedule. And while they are only set to begin in 2024-25, they hang over these budget figures like a dark spectre.

    The budget papers also confirm the economy is far from buoyant. The next 18 months are expected to see economic growth well-below average. Households are reacting to three years of falling real wages, and eleven painful increases in interest rates, by severely constraining consumer spending. Slowing job creation and declining real wages are taking their toll on overall economic growth, highlighting again that the key to a strong economy is strong employment and wage growth.

    Please read our research team’s full review of this historic budget.



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  • RBA Review a Missed Opportunity

    Macroeconomics

    RBA Review a Missed Opportunity

    by Anis Chowdhury

    Author

    Anis Chowdhury

    The Commonwealth Treasury has released the report of a three-person panel charged with reviewing the structure, governance, and effectiveness of the Reserve Bank of Australia (RBA). Treasurer Jim Chalmers accepted in principle all 51 of the panel’s recommendations, ranging from creating a separate board to make decisions on interest rates, to giving the Bank a simpler dual mandate to pursue both price stability and full employment.

    The report represents the most important reconsideration of monetary policy in Australia since the advent of inflation targeting three decades ago. But the “new look” RBA after this review may even do more harm to the economy than in the past. This is because the independent review panel missed the opportunity to question the deeper myths and assumptions regarding the central bank’s infallibility and their ideological bias.

    In this report, Centre for Future Work Associate Dr Anis Chowdhury catalogues the assumptions and failures of conventional inflation targeting policy, and the misleading nature of so-called ‘independent’ central banks. He argues the review panel missed an historic opportunity to reconsider those assumptions, and help craft a more balanced and democratic macroeconomic policy framework.



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  • Minimum wages and inflation

    Macroeconomics

    Minimum wages and inflation

    by Greg Jericho and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Jim Stanford

    New research from the Centre for Future Work at the Australia Institute has revealed how rises in the minimum wage have almost no impact on inflation and given the collapse in the value of the minimum wage in real terms over the past 2 years, a 7% increase is a necessary recompense for Australia’s lowest paid workers.

    Each year the Fair Work Commission conducts the Annual Wage Review (AWR) which determines the national minimum and award wages. And each year it is met with a chorus of cries from business groups, conservative politicians and commentators that Australia’s economy will surely break should the minimum wage be raised too much.

    Over the past two years however, the minimum wage has risen by less than inflation, causing a significant decline in the real purchasing power of millions of workers covered by the Modern Award system. This marks the first time in a quarter-century that the minimum wage has had a deflationary impact on the economy (that is, increased by less than the inflation rate) over successive years.

    Despite this fall, once again, submissions from business groups to this year’s AWR have called for rises below inflation, and have cited concerns about a wage-price spiral as justification for advocating a further erosion of low-paid worker’s living standards.

    But research by Greg Jericho and Jim Stanford shows that minimum wage increases over the past 25 years have had little to no impact on inflation at all. It also demonstrates that a 1% increase in the minimum wage and all Modern Award wages – even if completely passed through into higher prices – would result in a virtually undetectable 0.06% increase in economy-wide prices. So small is this that a mere 0.2% fall in profits would be enough to cancel any impact on prices at all.

    The research reveals that the call from the Australian Council of Trade Unions for a 7% increase in the national minimum wage would make up a portion (but not all) of the real wage losses, workers have experienced in the past two years. Even if fully passed on in higher prices, with no reduction in current record-high business profits, a 7% minimum wage hike would at most translate into an increase of just 0.4% in economy-wide prices.

    Alternatively, that 0.4% rise could be offset by just a 1.4% reduction in total corporate profits.

    With inflation passing its peak, there is no cause for concern that a minimum wage rise of 7% (equal to the annual rate to the March quarter) would add fuel to the inflation fire.

    This reinforces recent research by the Centre for Future Work that profit margins are presently at record highs in Australia, because companies have increased prices since the pandemic far more than their own input costs. This gives companies ample cushion to absorb the cost of higher minimum wages, with no impact on prices at all.

    In sum, the impact of minimum wage increases on average prices is thus little more than a rounding error. But for the 20% of employees who earn either the national minimum wage or wages set under Modern Awards, a strong minimum wage increase will be vital. It will ensure that the lowest paid, who have already been most hurt by inflation, are not forced to suffer more due to an inflationary upsurge that was ultimately spurred by higher profits, not wages.



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  • Profits and Inflation in Mining and Non-Mining Sectors

    Macroeconomics, Wages & Entitlements

    Profits and Inflation in Mining and Non-Mining Sectors

    More detail on the causes and consequences of the profit-price spiral
    by Greg Jericho and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Jim Stanford

    New research from the Centre for Future Work at the Australia Institute has shed further light on the role of higher corporate profits in driving higher prices in Australia since the COVID pandemic.

    A previous report from the Centre showed that 69% of excess inflation (above the Reserve Bank’s 2.5% target) since end-2019 arose from higher unit corporate profit margins, while only 18% was due to labour costs. The new research provides detail on the distribution of those excess profits across different sectors in the Australian economy.

    By far the biggest profits were recorded in the mining sector, where corporate operating profits surged 89% since the onset of the pandemic. Those profits resulted from sky-high prices for fossil fuel energy (including petroleum products, gas, and coal). Thanks to those price hikes, the mining sector now captures over half of all corporate profits in the entire Australian economy.

    Less spectacular but significant increases in corporate profits are visible in several other sectors of the economy, too – not just mining. Profits swelled rapidly in wholesale trade, manufacturing, transportation, and other strategic sectors.

    In these strategic industries, businesses could exploit supply chain disruptions, consumer desperation, and oligopolistic market power to increase prices well beyond production costs.

    In other sectors (including arts & recreation, hospitality, and telecommunications) profits have been flat or falling since the pandemic.

    Early signs in 2023 that inflation (and corporate profits) had peaked, and were returning to normal, have been thrown into question by a renewed threat of profit-price inflation: the OPEC+ cartel decided earlier this month to curtail oil production to boost world prices.

    Policy-makers need to acknowledge the role of record profits in driving recent inflation – and develop alternative policy responses (such as price caps in strategic markets, excess profit taxes, and targeted fiscal support for working and low-income households) to manage current inflation in a fairer and more effective way.



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