Millions of Australians may not get a payrise for years as the economy struggles to recover from the impact of coronavirus.
In a grim warning on Thursday, federal treasurer Josh Frydenberg said wages growth is likely to remain subdued for ‘at least the next few years’.
In the April-to-June quarter, wages grew by just 0.2 per cent – the lowest increase for 22 years – and that was before Victoria’s second lockdown caused even more economic damage.
In the three months until June, wages grew by just 0.2 per cent. Salaries in mining (pictured are two engineers) grew by 0.5 per cent
Millions of Australians may not get a payrise for years as the economy struggles to recover from the impact of coronavirus. Pictured: A cafe worker in Melbourne
The hardest hit categories were construction and professional services, which suffered a wages drop of 0.5 per cent, and other services including personal care and maintenance which saw a 0.9 per cent decrease.
Electricity, gas, water and waste services saw wages increase by 0.6 per cent, while salaries in education and mining went up 0.5 per cent and finance wages rose by 0.4 per cent.
In a speech to the Australian Chamber of Commerce and Industry, Mr Frydenberg said the effects of the coronavirus-caused recession will last for many years.
Australia’s unemployment rate, which was five per cent before the pandemic, was 7.5 per cent in July and 6.8 per cent in August.
‘As with past recessions, here and around the world, the unemployment rate will take time to return to pre-crisis levels, despite our unprecedented response,’ the treasurer said.
He said the other major change to the economy will be a ‘persistently lower level of prices and wages’.
Wages in the retail sector grew by only 0.1 per cent in the June quarter. Pictured: A shop in Sydney
The hardest hit categories were construction (pictured) and professional services, which suffered a wages drop of 0.5 per cent, and other services including personal care and maintenance which saw a 0.9 per cent decrease in the three months until June
‘With high levels of spare capacity in the economy, it will be some time before inflation returns to the mid-point of the Reserve Bank’s target range [of 2-3 per cent].
‘And wages growth is also likely to remain subdued for at least the next few years, until the jobs market tightens.’
In the June quarter inflation was -0.3 per cent, meaning prices dropped slightly.
Meanwhile, seasonally adjusted private sector wages grew 0.1 per cent and public sector wages increased 0.6 per cent, resulting in a total increase of just 0.2 per cent.
That is the lowest rise since the wage price index was introduced in 1998.
‘These changes to the underlying economy, which stem directly from the Covid-19 recession, will weaken our medium-term budget position, even as our targeted policy support [including JobKeeper and a boosted JobSeeker] is phased out,’ Mr Frydenberg said.
Average weekly earnings by industry in May 2020
Electricity, Gas, Water & Waste services: $1,907.70
Wholesale Trade: $1,591.50
Retail Trade: $1,259.80
Accommodation & Food Services: $1,139.30
Transport, Postal & Warehousing: $1,662.10
Information Media & Telecommunications: $2,033.40
Financial & Insurance Services: $2,015.80
Rental, Hiring & Real Estate Services: $1,561.30
Professional, Scientific & Technical Services: $1,965.70
Administrative & Support Services: $1,537.90
Public Administration & Safety: $1,801.90
Education & Training: $1,825.70
Health Care & Social Assistance: $1,624.60
Arts & Recreation Services: $1,523.80
Other Services: $1,339.30
Total All Industries: $1,713.90
The treasurer promised to stimulate demand through government spending in his 6 October budget to help create jobs and investment.
‘That may be in the form of incentives for business to invest, that may be in the form of other initiatives, bringing forward infrastructure,’ he said.
‘There are a range of measures we are taking which is putting more money into the economy, helping to support jobs.’
Most economists predict the budget will show a deficit of more than $200billion.
‘It’s going to be sizeable but it reflects the challenge that we face,’ Mr Frydenberg said.
Australian Treasurer Josh Frydenberg arrives to deliver a fiscal strategy speech at Parliament House in Canberra on Thursday
‘We had no other option but to provide this economic support to the people who need it most and as a result, Australia has fared so much better than other countries through this economic crisis.’
The treasurer outlined a two-step strategy that offers financial support during the coronavirus recovery before rebuilding the budget while keeping taxes low.
A key plank of the plan will be maintaining the existing cap on taxes as a share of the economy, which is 23.9 per cent.
Mr Frydenberg insists the goal remains to claw Australia out of debt in his lifetime.
‘But we know the economic shock has been like no other,’ he said.
‘Australia has fared a lot better than other nations but there’s still a big hole in the economy.’
In the June quarter Australia officially entered a recession for the first time since 1990.
What did the treasurer reveal in his pre-budget speech?
The October 6 federal budget will focus on two phases. Firstly, boosting business and consumer confidence which will last until the jobless rate gets back under six per cent. And secondly, shifting away from temporary and targeted support to structural reforms to increase the economy’s potential and improve the bottom line.
‘The 2020/21 budget will lay out our detailed plans for getting Australians back to work and businesses back to business in a COVID-safe way,’ says Treasurer Josh Frydenberg.
* While the unemployment rate in August was 6.8 per cent, it is expected to rise over coming months due to the lockdown in Victoria and as people re-enter the labour force to look for work
* To date, the government has announced $314 billion in support or around 15.8 per cent of GDP
* The states have provided $55 billion or around 2.8 per cent of GSP
* By the end of 2020-21, Australia’s real economy is expected to be around six per cent smaller than forecast in the 2019/20 mid-year update
* Net overseas migration is expected to fall from around 154,000 in 2019/20 to an outflow in 2020/21 and 2021/22 (that is, lost migrants won’t be replaced in number)
* Population growth is expected to slow to its lowest rate in over a century
* Wages growth is likely to remain subdued for at least the next few years, until the jobs market tightens
* A smaller economy will generate less income for the government over the medium-term (July economic update put the total receipts as a share of GDP at 24 per cent in 2020/21)
* Payments such as pensions and welfare are expected to be ‘materially higher’ than pre-COVID levels as a share of GDP
* The budget will seek to contain the size of government, maintaining the tax-to-GDP ratio below 23.9 per cent
* The coalition is seeking to achieve budget surpluses on average over the course of the economic cycle, building to surpluses of at least one per cent of GDP ‘when economic circumstances permit’.