CBA kicks off national wages demolition

Mortgage forbearance doesn’t come cheap. Via Banking Day:

The prospects of real wage growth for thousands of workers in the financial services sector are waning after Commonwealth Bank stumped up a low-ball pay offer in its current round of enterprise bargaining talks.

The Finance Sector Union has rejected the bank’s offer which provides for rises of between 1.5 per cent and 2 per cent in 2020 and 2021.

Some management staff earning above A$110,000 a year, whose salaries are governed by the enterprise agreement, will receive considerably less than the headline increases.

With the Reserve Bank expecting price inflation to run at around 1.5 per cent over the next 12 months, CBA’s proposed increase would merely maintain the real incomes of up to 30,000 staff employed in Australia.

While the FSU and its members are agitating for 3 per cent-plus increases in line with multi-year agreements negotiated earlier this year with Westpac and NAB, the pandemic has hamstrung the union’s bargaining power.

Suncorp’s announcement last week that it would cull 550 positions in its national workforce is expected to be the first of many restructures across the industry as banks and insurers react to revenue damage wrought by COVID-19.

There are indications that large financial institutions will try to negotiate pay deals even lower than the CBA offer.

Insurance Australia Group this week tabled a new three year pay offer that would see its total “salary pool” increased by only 1 per cent this year and in 2021, along with a 1.5 per cent rise in 2022.

Under the IAG proposal not all staff would receive a nominal income boost because the company wants to link pay increases to performance.

That means many IAG employees are facing declines in their real incomes as the top up to the salary pool over the next three years won’t be sufficient to deliver nominal pay rises in line with inflation for all staff.

The clampdown on wage growth in the financial services sector reflects an intensifying trend in Australia that was worrying the Reserve Bank well before the pandemic struck in March.

According to the minutes of this month’s RBA board meeting, wage growth hit a record low in the 12 months to the end of June.

“Members observed that the 1.8 per cent increase in the wage price index over the year to June was the lowest rate of growth in the history of the series,” the board states in the minutes.

“In discussing the subdued private wages growth outcomes in the June quarter, members noted that firms had responded more swiftly than in previous downturns to the weakening in demand by slowing the pace of wage increases.

“In some industries, such as construction, professional services and some other service industries, a small number of large wage reductions had contributed to a decline for the industry in aggregate.”

Leading economists acknowledge that real income contraction is likely to hinder Australia’s economic recovery because it could trigger further declines in household spending.

Independent economist Stephen Koukoulas believes the recovery is likely to be constrained by the pay deals now being negotiated because they lock in anaemic wage increases for several years.

“Wage cuts in real terms really hamper economic recoveries,” he said.

“Household spending fell more than 12 per cent in the June Quarter – without real growth in household income consumption will be kept under pressure.

“If you’re the government or the Reserve Bank the reality is that you’re not going to get households spending again with wage growth averaging ‘one point something’.”

Perhaps the only chance for unions to wangle real pay rises in the current environment is to invoke national interest arguments in the public arena and hope they inspire government jawboning of industry.

The FSU is already appears to be steering such a course, with assistant secretary Nathan Rees yesterday calling on banks and other financial institutions to put the interests of staff ahead of shareholders to support the national economy.

“By and large the financial services industry has remained resilient throughout COVID-19 thanks to the adaptive responses of their staff,” he said.

“Where financial institutions face a choice between wage increases or dividends, banks should prioritise the former because it directly boosts consumption that is needed to drive the recovery.”

With Australia’s gigantic output gap, expect the national wages demolition to be long and severe in real terms.

If mass immigration resumes, expect it to be long and severe in nominal terms.

David Llewellyn-Smith
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