SPEECH: Address to the Sydney Institute, Sydney, 8 June 2017

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THE HON TANYA PLIBERSEK MP
DEPUTY LEADER OF THE OPPOSITION
SHADOW MINISTER FOR EDUCATION
SHADOW MINISTER FOR WOMEN
MEMBER FOR SYDNEY

 

ADDRESS TO THE SYDNEY INSTITUTE

LOW WAGE GROWTH RISKS AUSTRALIA'S FUTURE PROSPERITY

THURSDAY, 8 JUNE 2017

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I acknowledge the traditional custodians of the land on which we meet, the Gadigal people of the Eora nation, and pay my respects to their elders past and present.

I’m a person who is pretty big on new experiences.

I like trying new places to eat, reading new authors, listening to new music.

But I found myself a little surprised - and maybe a little alarmed - by a new experience I had recently.

I agreed with Scott Morrison.

In February, the Treasurer said that the biggest challenge for the Australian economy at the moment is low wages growth.

I agree.

While there are plenty of challenges to choose from, low wages growth is right up there.

Of course it’s bad for individuals, but it’s also bad for our society and our economy.

Low wages growth, and the increasing inequality that comes with it, is creating a society in which too many people feel like outsiders…

…let down by our democracy.

And an economy saddled with sluggish wages will struggle to create demand and to grow.

It’s one thing to identify a problem.

It’s another to fix it in a way that is fair and efficient.

I’d say there are two very different strategies being promoted at the moment.

The government is sticking with trickle-down economics. 

The one card trick of a big business tax cut.

Labor, on the other hand, is working towards inclusive prosperity.

A strong and growing economy where the benefits of growth are more equally distributed – underpinning further growth.

A virtuous circle.

Some commentators like to say Labor believes in redistribution but not growth.

Inevitably, they talk about growing pies and cutting them up.

This misunderstands our position.

For Labor, fairer distribution is part of our growth strategy.

Full employment, decent pay and conditions, money in your pocket and the confidence to spend it – these aren’t nostalgic throw backs…

….they are necessary preconditions for a strong growing economy.

What is happening to wages?

In Australia right now we have lowest wages growth since records began.

Over the last year wages rose by just 1.9 per cent: below the level of the consumer price index.

Real wages are contracting.

This is, incidentally, the opposite of the prediction made at this very lectern by then Employment Minister Eric Abetz when he addressed you in 2014 and warned of an “imminent wages explosion”.

He stood here, lit the fuse, put his fingers in his ears…and he’s still waiting.

This week the Fair Work Commission announced an increase in the minimum wage of 3.3 per cent.

A full time worker on the minimum wage will earn about $36,134 per year.

This was met with predictable howls of outrage from the business lobby.

Justice Ross acknowledged that the panel’s past assessments of what a “modest” wage increase looked like might have been overly cautious.

I would have to agree - when the minimum wage and the awards that depend on it have grown by just 4.3 per cent in real terms over the last five years – less than half the rate of labour productivity growth.

Why is low wage growth a problem?

Why should we care about low wage growth?

Well obviously if you’re someone watching the bills race ahead of your pay packet – you know and you care.

But I believe this is an issue for all Australians – even the high income earners who are bucking the trend and continuing to see their own incomes grow.

We all want to see Australian businesses succeed, to earn export dollars and generate jobs.

Business needs stable government, they need good governance, simple and fit for purpose regulation, low levels of corruption.

They need a healthy, educated, Asia-literate, multi-lingual, high productivity workforce.

The ‘human capital’ produced by world-class schools, TAFEs and universities.

A workforce that graduates with the knowledge to succeed now – but also the capacity to adapt to a working world defined by rapid change.

Businesses  need quality modern infrastructure: road, rail, ports, airports…

…and digital infrastructure - high speed broadband.

If we get these things right, we are a fair way along the road to creating the environment in which businesses can thrive.

But unless the customers are there - with money in their pockets and the confidence to spend it - businesses will struggle.

Endemic low wage growth, and the low consumer confidence that partners it, is increasingly recognised as a handbrake on growth.

Business profits in Australia are at an all-time high and increased by     40 per cent last year.

That’s good news.

I want Australian businesses to be profitable.

But businesses won’t stay profitable if potential customers hang onto their hard-earned.

Short-term profit that comes off the back of low wages or a shrinking workforce might help the CEO or CFO’s bonus this year…

…but it damages our broader economy in the long run.

Low wages and growing inequality - and the drag on growth that they represent - are on the radar of the OECD and the IMF.

They have found that economies with more equal distributions of income and wealth have stronger and more stable growth than those with greater inequality and that redistributive policies which reduce inequality have a positive impact on growth.

Increasing wages at the bottom supports spending.

People on low incomes tend to spend a larger proportion of their income than those at the top.

An economy where real wages are contracting faces declining living standards for households around the country, higher levels of inequality and insecurity and consequent lower economic growth.

Even Scott Morrison gets that.

Why is this happening?

It’s a fact that wages are stagnant or falling.

But why?

Judith Sloan writing in May spoke for the Treasury and the Reserve Bank as well as most domestic and international economists when she said: “The truth is we really don’t understand why wages are growing so slowly”.

A paper in March of this year by the Reserve Bank entitled “Insights into Low Wage Growth in Australia” attempted to understand the situation better.

In particular the Bank looked at two aspects of low wage growth, its puzzling relationship to the unemployment rate and the possibility of it being affected by structural changes to the labour market.

The Bank looked at unemployment because the orthodox model suggests that wages should be rising with unemployment at current levels.

In Australia unemployment currently sits at 5.7 per cent, around GFC levels.

It has been stable at roughly this level for about 18 months.

However, the headline rate masks the true nature of unemployment particularly hidden unemployment - those who have given up looking for work…

…and under-employment - those who are working but wish for more hours.

The part-time share of employment currently sits at just 31.9 per cent -

0.1 per cent below its historic high set in November last year.

This is one of the highest part-time rates of any developed country.

Around one-third of part time workers say they want more hours.

That is 1.1 million people.

The under-utilisation of labour means that increased demand for labour is first absorbed by those looking for more work or those re-entering the job market instead of increasing the price of labour.

The Reserve Board paper also noted that international literature has argued that “low wage growth may reflect a decline in workers’ bargaining power.”

You don’t say.

I would go further and argue that there is a clear link between the fall in union membership, the lowering of workers’ bargaining power and today’s low wage growth.

This is not a radical position.

The IMF - historically no great supporter of labour unions - has acknowledged the links between low levels of unionisation on the one hand and low wages, inequality and increasing incomes for those at the top on the other.

Australia shows the truth of that.

We’ve moved from centralised wage fixing – to workplace agreements underpinned by a safety net of minimum conditions.

Union membership has fallen from 40 per cent of the workforce to around 15.

And yet inequality is at a 75-year high.

If we’re going to get wages going in the right direction, we need a new look at old assumptions.

Take productivity.

The assumption has always been that increased labour productivity is shared by businesses with their workforce through higher wages.

John Fraser, Secretary to the Treasury, is among those who’ve pointed out recently that there has been a shift from wages to profits.

Productivity is improving – but the dividend isn’t being shared with the employees. 

The link between hard work and reward has been severed.

So with:

-       unemployment around GFC levels,

-       historically high underemployment,

-       low rates of unionisation,

-       big structural shifts in the labour market, such as the decline in mining sector and manufacturing jobs

-       tech disruption…

The result is reduced bargaining power for employees – and smaller pay-packets for workers.

It’s particularly true of wages at the bottom end.

Real wages for the top 10 per cent of income earners have grown by    72 per cent over the last four decades…

….that’s more than three times the rate of increase for incomes for the bottom 10 per cent of income earners.

What is the answer?

If low wages growth is the problemwhat’s the solution?

The Liberals think it’s a tax cut for multinationals, a tax cut for millionaires and a tax hike for working class and middle class people.

It’s a tax and spend plan – but they’re taxing working people and spending it on the top end of town.

We take a different view.

We believe in a strong growing economy creating well-paid secure work:

-       a tax and transfer system that supports growth and fairness,

-       a strong social safety net,

-       growth which is environmentally and socially sustainable.

We support investment in productivity enhancing infrastructure, selected on the basis of sensible business plans – not where the marginal seats are, or where a dart lands when Barnaby Joyce throws it at a map on his wall.

The choice before us is as stark as it has ever been, and the challenge is, in many ways, as large.

The Hawke-Keating Government inherited a stale and sluggish economy, locked in a vicious wage-inflation spiral where the pathway to continuing growth was uncertain.

Wayne Swan, Kevin Rudd and Julia Gillard fought off a global shock that saw Australia as almost the only developed nation to continue to grow during the global financial crisis.

As the successors of these reforming governments we are ready to rise to the challenge once more.

But I’m not sure the Coalition is.

Let’s talk about the 2017 Budget.

If the deficit levy paid by those on incomes over $180,000 was designed to help address the deficit, now is not the time to get rid of it.

The deficit is ten times greater now than when the levy was first introduced in 2014 and net debt is headed for three quarters of a trillion dollars.

In its last Budget the government also announced an increase in the Medicare levy.

The smokescreen for this is the so-called ‘NDIS emergency’.

Labor fully funded the National Disability Insurance Scheme when we were in government.

In reality, the new Medicare levy increase is to help pay for the Liberals big business tax cut…

…now revealed to cost $65 billion over ten years.

The tax increases – combined with other changes such as the lowering of the repayment threshold for university debt to $42,000 – will impact hardest on those on the lowest incomes.

Analysis quoted by Peter Martin in the Sydney Morning Herald shows that for a couple renting, where one partner has left uni and the other is still studying, the effective marginal tax rate is over 97 per cent once they clear an income of $37,000 a year.

And it stays in the high nineties until $50,000.

Budget analysis from the National Foundation for Australian Women found that women on around $50,000 a year could face an effective marginal tax rate of more than 100 per cent.

A woman graduate, working and relying on child care, earning $51,000 a year and receiving family payments will actually have less disposable income than a man earning $32,000 a year.

Under Malcolm Turnbull’s plan – a millionaire gets a tax cut of $16,400 while someone earning $60,000 a year pays $300 more tax.

If wages growth for low and middle income earners is the issue – it’s hard to see how a tax cut for those earning over $180,000 and a tax increase for everyone else does anything but make the problem worse.

Because the government is not only relying on wage growth for economic growth but also for fiscal consolidation and to meet budget projections.

The 2017 budget depends on a bracket creep led recovery.

The Budget forecast of a return to surplus in 2021 is based on the somewhat heroic assumption that wage growth will nearly double over the next four years from 1.9 per cent per annum to 3.75 per cent, resulting a 16 per cent increase in income tax receipts over two years.

I am yet to read an economic commentator outside Treasury who regards those numbers as credible…

…especially as the government is doing everything it can to depress wages growth with its support for low increases to the minimum wage and cuts to penalty rates.

It’s the same story with the $65 billion company tax cut.

Treasury's own modelling shows an employment increase of just 0.1 per cent by 2026-27.

And the $2 a day wage increase Treasury predicts – again, a decade down the track - depends on that old, frayed link between productivity and wages.

As for the idea that Australia’s current rate puts us out of step with the global pack…

…well few companies in Australia are currently paying the 30 per cent statutory rate.

The average tax rate is 24 per cent for public companies and 19 per cent for private companies.

One in three private companies and one in four public companies pay no tax at all. 

Australian companies also have a history of high dividend payments – in 2015, 81 per cent of earnings were paid in dividends, an historic high.

The outcome of a lower business tax rate will be increased profits and dividend payments, particularly to foreign shareholders.

When I was Shadow Minister for Foreign Affairs, I spent a lot of time saying the Government should increase the amount of money it spends on Foreign Aid.

But billion-dollar giveaways to international companies and overseas shareholders isn’t what I had in mind.

So the government is giving up $65 billion in corporate tax revenue and $19.4 billion in the deficit levy and partially replacing it with an increase to the Medicare Levy…

…which hits every working Australian earning more than $21,335.

Labor’s Plan

Our alternative focusses on inclusive economic growth.

A modern tax policy - a foundation for strong growth - keeps tax rates as low as possible, but ensures that businesses and individuals pay their fair share.

We took policies to the last election to wind back negative gearing on existing housing and halve capital gains tax discounts.

Since the election, we have promised to cap deductions for managing tax affairs to $3,000 per annum and we’ve made a number of announcements designed to minimise corporate tax avoidance….

….because the tax system shouldn’t redistribute from the bottom and middle to the top.

It should ensure a low rate, fairly spread.

In his Budget reply, Bill announced that we will protect 80 per cent of Australian taxpayers from the government’s Medicare Levy increase.

Our alternative tax policy raises more money more fairly - by retaining the deficit levy and by applying the increased Medicare Levy only on those in the top two tax brackets.

By taking a progressive approach which protects Australians on low and middle incomes we protect the spending power of those most likely to spend.

In three weeks’ time, 700,000 people in retail, hospitality, pharmacy and fast food will begin to have their penalty rates cut.

The Fair Work Commission announced this week that the cuts will be phased in over time however people will be asked to do the same work for less pay, for four years in a row.

The industries affected are already low paid, and have had very slow wage growth in recent years.

Aside from the unfairness of asking workers to do the same work for less money, the effect of taking these wages away from low and middle income earners - who are likely to spend them - comes at just the wrong time in our economic cycle.

The combined effect of higher taxes and lower wages for low and middle income earners is likely to further contract demand.

Especially in regional centres, where more people rely on penalty rates and more small businesses rely on their spending.

A fair go at work begins with being paid fairly for your time.

But it’s broader than that – it always has been. 

The Fair Work Act was introduced into Parliament in 2008.

In 2008 there was no Uber, Airtasker or Airbnb.

Today we see widespread evidence of systematic exploitation of workers in examples like 7-Eleven, Domino’s and Caltex.

The labour market of today is very different to that of 2008 – and that of 2028 will be different again.

We have to ensure that our workplace relations system provides workers and their unions sufficient bargaining power and that they are – at the very least - able to restore what seems to be the broken link between labour productivity and wages.

Labor’s Shadow Minister Brendan O’Connor has started the process of making sure our industrial relations environment is modern and fit for purpose, with policy announcements on:

-       the regulation of labour hire companies,

-       cracking down on dodgy directors who engage in ‘phoenix activity’, where they deliberately burn companies in an attempt to avoid their obligations to employees,

-       preventing the exploitation of vulnerable workers and modern slavery,

-       examining the use of casual and insecure work, and

-       preventing companies forcing employees back on substandard Awards during enterprise bargaining negotiations.

But the big changes in the labour market have only just begun.

And fairness in the workplace also depends on creating jobs in the future.

Right now, manufacturing and mining are shedding jobs.

Policy uncertainty around climate change and the talking-down of renewable energy is creating a missed opportunity for investment that will create jobs and reduce energy prices.

The National Disability Insurance Scheme is another great reform for our society.

The NDIS is good social policy.

It’s also good economic policy.

Of course the NDIS is critical in achieving what Australians with a disability have been demanding – helping them fully participate in the workforce and our community life.

It helps family members who are carers return to paid work too.

But the NDIS is also one of the biggest source of new jobs in this country right now.

It will create more than 70,000 new jobs in every part of Australia by 2019.

We have a choice as to what kind of jobs these new jobs will be.

The default position – typical for feminised caring work – is that they will be marginal, insecure, low paid jobs.

We cannot let this happen.

We must ensure that these are good, well paid jobs with a career path and job security.

There should be a pathway into the sector for the long term unemployed while skilled, experienced carers have the opportunity to progress their careers through more complex work.

The creation of good jobs ensures that these workers are part of our growth story.

Conclusion

Whilst we’re all proud that our economy has been growing for such a long time we would all like to see that current rate of growth higher.

We cannot fall into the trap of just patting ourselves on the back every time we get a positive quarterly number and assuming everything is ticking along nicely.

If we duck the hard questions or gloss over the real story…then we’ll be handing on bigger problems and harder challenges to those who come next.

The choices we make today will shape the lives and living standards of the next generation.

So we need to be able to answer these questions:

Do we have the policy settings right for our rapidly changing labour market?

Are we ensuring that our tax policies encourage growth where it’s needed?

Is our workplace relations system fit for purpose?

And do we have a plan to reward people for their time – to re-build the link between hard work and fair pay?

These aren’t diversions from the economic story – they are the economic story.

These aren’t the dividends of economic growth – they are the preconditions for it.

I started tonight by talking about new experiences.

After four years of the Liberals, I think Australians need some new experiences:

-       a decent pay rise,

-       a fairer tax system,

-       real action on climate change, and

-       proper investment in schools, skills and universities.

New experiences – built on the oldest Australian idea of them all.

A fair go all round.

Thank you very much.

ENDS