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Tag: Greg Jericho

  • The RBA should keep its finger off the interest rate trigger

    The RBA should keep its finger off the interest rate trigger

    by Greg Jericho

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    With unemployment tumbling in February, the Reserve Bank of Australia (RBA) should resist the urge to raise interest rates, says Australia Institute Chief Economist Greg Jericho.

    Unemployment fell dramatically in February, defying the expectations of many policymakers and economists.

    While the RBA has genuinely seen low unemployment as a key driver of inflation, Jericho said their belief is misguided.

    “The Reserve Bank, we know, has this belief that unemployment needs to rise to lower inflation,” he said on the latest episode of the Dollars & Sense podcast.

    “We here at the Australia Institute and Centre for Future Work have been saying, ‘no, that’s completely wrong’.

    “Inflation has not been rising and falling because there’s more or less unemployment in the system – it was because of what has been happening on the supply side, what’s happening with corporate profits.”

    This view was supported by a 2023 report from the Organization for Economic Cooperation and Development (OECD), which found that high corporate profits was a more significant factor in driving inflation after the Covid-19 pandemic than wages.

    “Stop trying to put people out of work just to get inflation down. It’s a stupid thing to do,” said Jericho.

    “And, actually, these figures kind of confirm that.

    “Inflation has been slowing and what have we seen? Unemployment drop!”

    The drop in the seasonally adjusted jobless rate, from 4.1 to 3.7 per cent, means roughly 116,000 additional Australians were in work in February. This represents the single biggest improvement since the early 2000s, outside the core years of the pandemic.

    The next interest rate decision will be handed down by the RBA on 7 May.

    Dollars & Sense is available on Apple Podcasts, Spotify, Pocket Casts, Google Podcasts or wherever you get your podcasts.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • 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.



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    Increasing minimum wage would not drive inflation up: new report

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  • The gas industry is laughing at us as they make more money but not more tax

    The gas industry is laughing at us as they make more money but not more tax

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on February 29, 2024

    Despite soaring production and revenues the gas industry is not paying more tax

    Australia produces more than six times the amount of gas needed to supply our manufacturing industry, power stations and homes. But more than 80% either heads overseas as LNG exports or is used to convert natural gas into LNG:

    We export much more gas than we used to. In the 2000s we exported around 14m tonnes of LNG a year. Now, due to the opening of the Gladstone LNG terminal, we send 83mt overseas – the second most of any nation.

    But more production and more revenue has not led to more tax, even though the petroleum resources rent tax (PRRT) is in place to supposedly raise revenue from windfall profits such as those generated by the gas industry after the Russian invasion of Ukraine.

    When Australia exported 15.4mt of LNG in 2008-09, the government raised $2.2bn in PRRT. In 2022-23, exports had increased 437% to 83mt but PRRT revenue was up just 7% to $2.4bn.

    Did gas suddenly become unprofitable?

    No, the problem is that the PRRT is open to manipulation that enables companies to use costs to reduce their PRRT liability such that it appears they are never making “super profits”.

    In last year’s budget, the government finally proposed limiting the deductions to the PRRT in any year to 90% of LNG project revenues. Alas that proposal also had a punchline. The government announced the changes would raise an extra $2.4bn in PRRT over the next four years. That was roughly a 30% increase in tax.

    Thirty per cent!

    You would think the gas industry would launch the mother of all campaigns against it. But no. They loved it.

    The day it was announced the gas industry peak body recommended bipartisan support as the changes “would see more revenue collected earlier”. The key word was “earlier”. It won’t raise more tax; it just moves some tax from later to earlier.

    But it won’t even do that.

    In December’s midyear economic and fiscal outlook, the government announced it was revising down its estimate of how much PRRT would be raised over the next four years.

    How much did it reduce its estimate by?

    You guessed it: $2.4bn.

    We need to change the way the PRRT operates, we need to tax our gas more and we need to do it now.


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    Australia’s Gas Use On The Slide

    by Ketan Joshi

    The Federal Government has released a new report that includes projections of how much gas Australia is set to use over the coming decades. There is no ambiguity in its message: Australia reached peak gas years ago, and it’s all downhill from here:

    Commonwealth Budget 2025-2026: Our analysis

    by Fiona Macdonald

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget, focusing on key areas for workers, working lives, and labour markets. 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

  • Mid-Term Review of Albanese Government’s Labour Policy Reforms

    Labour Standards & Workers’ Rights, Unions & Collective Bargaining

    Mid-Term Review of Albanese Government’s Labour Policy Reforms

    Reforms will make a significant difference, but further progress needed
    by Greg Jericho, Charlie Joyce, Fiona Macdonald, David Peetz and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Charlie Joyce

    Researcher

    Fiona Macdonald

    Acting Director, Centre for Future Work

    David Peetz

    Laurie Carmichael Distinguished Research Fellow

    Jim Stanford

    A review of the Albanese government’s labour and industrial relations reforms at the mid-point of its term in office concludes that the government deserves “positive marks” for several measures taken to strengthen collective bargaining and accelerate wage growth.

    That assessment is contained in an article contained in a new special issue of the Journal of Australian Political Economy (JAPE), evaluating the government’s record on a range of issues halfway through its term. The special issue of JAPE was published on 18 December, and was edited by Prof Emeritus Frank Stilwell at the University of Sydney.

    The article reviewing the government’s labour policies was co-authored by several staff at the Centre for Future Work, including Greg Jericho, Charlie Joyce, Fiona Macdonald, David Peetz, and Jim Stanford. It considers the impacts of several government initiatives, including:

    • Successive rounds of reforms to the Fair Work Act (including last year’s Secure Jobs, Better Pay bill, and this year’s Closing Loopholes legislation).
    • Several reforms to address gender inequality in workplaces.
    • A more ambitious approach to raising the national minimum wage.
    • Longer-run proposals for attaining full employment, described in the government’s recent White Paper on Jobs and Opportunities.

    The authors judge that the government’s labour reforms have achieved an “incremental but significant rebalancing of industrial relations.” They pointed to the acceleration of wage growth in Australia in the last year as evidence that workers have won important bargaining power. Wages are now growing at 4% year-over-year, according to the latest WPI data from the ABS — twice as fast as they did on average over the previous decade, which was marked by the slowest sustained wage growth in the postwar era.

    The authors caution, however, that additional reforms are necessary to reverse the erosion of collective bargaining coverage and union membership, and ensure that workers have the bargaining power to improve wages, job security and working conditions.

    “On the whole, the Albanese government has made cautious but useful progress on industrial relations and labour issues during its first year. However, it must be acknowledged that the overall labour relations regime in Australia remains heavily skewed in favour of employers,” the authors concluded.

    Please see the full article, “Labour Policy,” by Greg Jericho, Charlie Joyce, Fiona Macdonald, David Peetz and Jim Stanford, at the link below. Fiona Macdonald also authored a second article in the special issue, dealing with the government’s reforms to care policies. To see the full collection of articles in the special issue, visit the JAPE website.



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  • Higher exports prices improve the budget, but the Stage 3 tax cuts remain the wrong tax at the wrong time

    Higher exports prices improve the budget, but the Stage 3 tax cuts remain the wrong tax at the wrong time

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on December 14, 2023

    As the Budget outlook improves, with most of the benefits of Stage 3 tax cuts going to those earing over $120,000, over 80% of workers will be short-changed

    Yesterday’s mid-year economic and fiscal outlook (MYEFO) provided some pleasing news for the Treasurer, Jim Chalmers. But higher revenue does not mean a stronger economy nor that households are better off.

    While the Treasurer was releasing the latest budget numbers the annual figures for median earnings were released by the Bureau of Statistics.

    These figures showed that the median weekly earnings in August this year were $1,300 – a rise of 4.2% from last year, which was less than the 5.4% increase in inflation.

    That weekly amount translates to $67,600 in annual earnings.

    People earning that amount will get just $565 from the Stage 3 tax cuts (0.8%) while someone on $200,000 – well in the top 10% of earners will get a 4.5% cut worth $9,075.

    The Treasurer told ABC 730 on Wednesday night that the government has not changed its position on Stage 3 and that “We think there is an important role for returning bracket creep where governments can afford to do that.”

    The problem is the Stage 3 cuts are mostly focused at rewarding those on high incomes, who are least affected by bracket creep.

    If the Government was truly worried about using the bonus revenue from higher export prices to assist low and middle-income earners it would care more about those on the median income of $66,700 than those in the top tax bracket and top 10% of income.


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    Commonwealth Budget 2025-2026: Our analysis

    by Fiona Macdonald

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget, focusing on key areas for workers, working lives, and labour markets. 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

  • After two years of profit-led inflation, workers deserve the pay rises they are getting

    After two years of profit-led inflation, workers deserve the pay rises they are getting

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 16, 2023

    The wage rises for low-paid workers on awards and those working in aged care helped drive the strong wage growth.

    The latest wage growth figures showed that workers’ wages for the past six months have grown faster than inflation. As Labour Market Policy Director, Greg Jericho writes in his Guardian Australia column, this should be celebrated. We need to shed our fear of wage rises. For too long any sign of increasing wage growth has been viewed as something to be stomped on while ever-increasing corporate profits have been cheered.

    Since the start of the pandemic, workers’ purchasing power has crashed, and the only way to recover the lost real wages is through wages increasing faster than inflation.

    The 1.4% growth of private-sector wages in the September quarter was driven largely off the back of the Fair Work Commission’s decision to increase Award wages by 5.75% and the decision to give aged-care workers a 15% pay rise.

    As a result around 40% of those who gained a pay rise in the September quarter received one greater than 4%.

    One other pleasing sign has been the relaxation of public sector wage caps has allowed those workers around the country to get a fairer pay rise, but their increases remain well below that of the private-sector.

    The profit-led inflation since 2021 hurt workers, and it now is only fair that they receive some recompense. After a decade of ever falling wage growth and a pandemic and recover that smashed real wages, it is very good news that workers are finally getting their fair reward.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • The Government needs to act on Stage 3 as the RBA warns about wealthy households spending

    The Government needs to act on Stage 3 as the RBA warns about wealthy households spending

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 9, 2023

    The RBA made it clear one group continues to do well, and continue to spend – and they are also the ones who are about to get a massive tax cut.

    The Reserve Bank’s decision to raise interest rates on Tuesday lacked any clear reasoning.

    When compared with other periods such as during the mining boom, when household spending was growing fast and real wages were surging, we can see that the economy at the moment is much weaker. Households are now cutting back on luxuries as their real wages fall.

    But the RBA pointed out that one group of Australians are doing OK – those with high income and wealth. Those with large savings buffers and who are also enjoying the increased wealth from rising house prices are still spending.

    This is also the group who are about to be handed the biggest income tax cut in history. The Reserve Bank has made it clear that allowing Stage 3 to go forward in its current form will only fuel inflation and likely result in higher interest rates for all.

    With a Reserve Bank desperate to use any excused to raise rates and slow the economy even as it already slows, the Government needs to amend the Stage 3 cuts to deliver greater benefit to low-middle income households who have suffered the most from the rising cost of living and interest rates, and less to those who are already doing well and for whom a potential $9,075 tax cut would just put more fuel on the inflation fire.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • When the prices of necessities are rising fast, the RBA does not need to hit households with another rate rise

    When the prices of necessities are rising fast, the RBA does not need to hit households with another rate rise

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on November 2, 2023

    Cost of living rose by more than inflation because of interest rate rises. Another rate rise would only cause more unnecessary pain.

    In the past week, the likelihood of the Reserve Bank raising the cash rate to 4.35% has gone from about 20% prior to last week’s inflation figures coming out, to now an even-money bet.

    But when you look at the cost of living figures out this week it is clear that households are already having to reduce their spending on non-discretionary items.

    Out of the 14 biggest contributors to inflation, 10 were non-discretionary items.

    At this point we should note the comments of the secretary of the Treasury, Steven Kennedy, last week in Senate estimates. He was asked about the pathway to a “soft landing” – ie where inflation falls without us going into a recession.

    He noted that chances of a soft landing were made harder by recent rises in oil prices because “on the one hand, it will increase headline inflation by raising petrol prices. On the other hand, it may well reduce growth and see other prices fall because people have less to spend. At least in the short term, expenditure on petrol is not very discretionary.”

    When the prices of things you can’t avoid paying for rise faster than others, then that obviously reduces your ability to spend elsewhere. In this way petrol, electricity and rental price rises have the same impact as do interest rate rises.

    The most recent figures of the volume of retail spending will come out tomorrow, but we know that the volume has been falling, and is now back to pre-pandemic trend levels:

    This of course is what you would expect – when the cost of non-retail items such as petrol, mortgages, rents, electricity, property rates, medical services and insurance are rising, you are going to buy less in the shops.

    Since March last year the cost of mortgages has gone up 114%. Does the Reserve Bank think households haven’t really noticed that?

    Even you if discount the record low rates during the pandemic, the cost of mortgages is now about 70% higher than it was at the end of 2019. Since then, wages have risen only about 10.5%.

    Another rate rise is not going to do anything other than add to the cost of necessities. It would not so much reduce inflation as increase the cost of living and hit households whose wages and incomes continue to be worth less than they were a year ago.


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  • The Reserve Bank should not raise rates on Melbourne Cup Day

    The Reserve Bank should not raise rates on Melbourne Cup Day

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on October 26, 2023

    Inflation is being driven by things unaffected by interest rate, so there is no reason for the RBA to raise rates in November

    The latest CPI figures showed inflation grew 5.4%, down from 6% in the June quarter and almost a third below the peak of 7.8% at the end of last year. And yet commentators seem desperate for the Reserve Bank of Australia to raise interest rates next month to show it is tough on inflation. But raising rates now would not be tough, it would just be cruel.

    The annual growth of inflation is falling quite quickly – down from 7.8% at the end of last year. But because the quarterly growth of inflation rose in the September quarter, a numbe rof commentators and economists have been suggesting that the Reserve Bank should raise interest rates in two months.

    But when you examine the drivers of inflation in the September quarter, there is little that would have an impact from higher interest rates.

    Automotive fuel prices accounted for 20% of the growth in inflation in September – that is completely unaffected by rate rises given that it was all due to higher world oil prices due to OPECD restricting supply. Similarly rental prices, electricity, property rates and charges, insurance, tobacco and beer prices have nothing to do with interest rates. Even the cost of building a new home is driven mostly by the increased cost of construction materials from overseas.

    Crucially in the September quarter the cost of “non-discretionary item” rose 1.4% while the cost of “discretionary” item rose just 0.7%. Non-discretionary items are things which you cannot avoid paying (at least in the short-term). In effect those price rises have the same impact on consumer spending as do rate rises – they reduce the ability of people to spend money on things in shops and on discretionary services.

    Had the RBA raised interest rates more in the September quarter there would have been negligible impact on the main drivers of inflation, raising them in November due to these latest figures would just be cruel and hurting people whose real wages continue to fall.


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  • Australia is an energy super power, we need to use that power for good

    Australia is an energy super power, we need to use that power for good

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

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    Originally published in The Guardian on October 19, 2023

    Australia is already an energy superpower, but our governments have lacked the courage to use that power to reduce greenhouse gas emissions

    As the Australian Government continues to pursue policies notionally designed to reduce our greenhouse gas emissions, a great store has been placed in Australia becoming a “renewable energy superpower”. However as Labour Market and Fiscal Policy Director, Greg Jericho, notes in his Guardian Australia column, Australia already is an energy superpower. But we fail to use that power for good.

    Australia is either the world’s largest or second-largest exporter of metallurgical coal, thermal coal and LNG. And yet we have not sought to use this power to pursue policies that would reduce demand for fossil fuels and transition the world towards renewable energy. Instead, we placate mining companies and give no timeline to end coal and gas use. We continue to approve new coal mines and fail to insert a climate-change trigger into environment protection legislation that determines whether new mines can be approved.

    Given September this year was the hottest September on record, after August this year being the hottest August on record, July this year being the hottest July on record and June this year being the hottest June on record, the time for action that reduces Australia’s and the world’s emissions is urgent and critical.

    Climate change is one area where Australia can legitimately take a leading role in global affairs, our power as an energy producer and supplier of fossil fuels which continue to exacerbate climate change demands we show this leadership.

    For too long Australian governments have cowered before mining companies, now it’s the time to realise we have the minerals they want now and in the future when renewable energy becomes the dominant power and thus we can dictate terms.

    Leadership requires the grasping of power and using it for good.


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    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

    Australia’s Gas Use On The Slide

    by Ketan Joshi

    The Federal Government has released a new report that includes projections of how much gas Australia is set to use over the coming decades. There is no ambiguity in its message: Australia reached peak gas years ago, and it’s all downhill from here: