RBA is now fighting Morrison Government on wages

In yesterday’s speech to the Ai Group, RBA Assistant Governor Luci Ellis again reiterated the central bank’s priority of absorbing spare capacity, achieving full employment, and driving up wage growth towards 3%:

As economies move through recovery to the expansion phase, the focus naturally turns to sustaining that expansion. That means ensuring that demand continues to be supported for as long as spare capacity remains. Absorbing spare capacity and achieving full employment is an important national priority. Full employment is a worthy goal for its own sake, given how important jobs and income are for people’s welfare. It is also a precondition for achieving the rates of wages growth that would be consistent with inflation being sustainably within the 2–3 per cent target range that the Bank is mandated to achieve…

For all these reasons, the Board remains committed to maintaining highly supportive monetary conditions. The aim of these policy settings is to support a return to full employment and inflation consistent with the target.

It is now clear that the RBA is fighting against the Morrison Government, which is hell bent on driving up spare capacity in the labour market and lowering wage growth by flooding the nation with foreign workers.

Consider the recent policy changes announced by the Government, each of which will have the effect of increasing labour supply, eroding worker bargaining power and holding down wages:

  • Uncapping the number of hours international students can work while studying in Australia;
  • Giving farmers a dedicated agricultural visa so that they can more easily hire foreign workers from South East Asian Nations;
  • Giving easier access to UK working holidaymakers under the newly signed free trade agreement; and
  • Adding an extra 22 occupations to the Priority Migration Skilled Occupation List, in turn giving these occupations priority processing for migration and travel exemptions.

As noted yesterday by CBA head of Australian economics Gareth Aird, the RBA needs the federal government’s assistance to achieve its full employment and wage growth goals, which necessarily means running a lower immigration intake than existed pre-COVID:

We believe that the RBA cannot achieve their objectives of full employment and inflation “sustainably in the target” without the assistance of the Commonwealth Government. More specifically, fiscal settings need to remain stimulatory and net overseas immigration cannot catapult back to strong pre‑COVID levels if wages growth is to remain at 3% per annum or above…

Clearly the closure of the international border has accelerated the tightening in the labour market. On our calculations the number of non-resident workers has declined by 286k or 55% over the year to the Q1 21…

The laws of supply and demand still work. If firms are struggling to recruit they will be forced to pay higher wages…

The recipe for generating higher nominal wages growth and inflation is quite simple – have fiscal and monetary policy working in tandem to stimulate economic activity and job creation whilst growth in the labour market is somewhat contained…

Immigration in the economy will need to be recalibrated when the international borders are reopened if wages growth is to make a more permanent lift to around 3% per annum.

By reopening the immigration floodgates, the Morrison Government is now working directly against the RBA.

The Labor Opposition should (but won’t) stand up and take a lower immigration policy to the upcoming federal election. Not only is it the right thing to do for Australian workers, but it also has the implicit backing of the RBA.

Unconventional Economist
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Comments

  1. C'est de la folieMEMBER

    Well the RBA has interest rates, the ability to print money and financial system integrity to bring to battle

    The government has, inter alia, the budget, tax policy, all government spending, the employment contracts of RBA officials and immigration policy.

    I am calling the government, inside 3 rounds, possibly after a towel thrown in, possibly after some acts of ritualistic humiliation. Possibly with the media and sections of the public egging them on.

    It has become that kind of world

  2. boomengineeringMEMBER

    ARTHUR.
    Just rode up North Head hill in the middle of cluster 5th from bottom. Will see hm tooth later for ratio calc.

      • boomengineeringMEMBER

        Thanks Ermo but it’s actually quite warm untill sunrise then becomes progressively colder.
        Needless to say the uphill climb in super high gear is at a snail’s pace.

  3. pfh007.comMEMBER

    “.. It is now clear that the RBA is fighting against the Morrison Government…”

    RBA fighting? Too many LOLs. They have zero spine and zero interest in fighting for anything especially the public interest.

    The RBA might be concerned about the debt serfs capacity to support the household debt bubble blown by the RBA but the government will not give too hoots about that.

    Cheap labour is what their donors like and the upper 30% love a cheap service class too. Anyone for a tasty treat delivered by pushbike?

    The government also knows that the middle class folk who hijacked the ALP largely agree.

    As for the middle who might sweat paying their debts and might swing and determine an election a bit of gaslighting about working harder, choosing better parents will keep them quiet.

    • It’a true. “Phighting” Phil Lowe has pushed the limits of his bravery. Like every other Morrison agency head, he knows he’ll be sidelined or sacked if he doesn’t sound like a government press release most of the time.

    • Arthur Schopenhauer

      Upper 30% love? Upper 5% maybe.

      The revised skill list is going to smash a lot of professional wages too.

      • pfh007.comMEMBER

        AP,

        The upper 5% don’t decide elections nor do the upper 1%.

        It is the upper 30-40% who have made out like bandits from asset price inflation that are driving the policies of the LNP (and the non policies of the ALP).

        The folks running the ALP (and the Greens) are mostly drawn from that upper 30-40% which is why the ALP (and Greens) have limited enthusiasm for policies that would actually exert sustained downward pressure on house prices and rents.

        Affordable housing is code for “social housing” that does not make a real difference to the housing market.

        If either the ALP or Greens were serious about lowing the cost of shelter they would set a target vacancy rate (say 4%-5%) and adopt policies that result in that target being acheived. A healthy supply of vacant housing exerts ongoing downward pressure on rents and prices. Slow house price growth deters capital gains chasing speculators but will not deter investors interested in the income from rent as lower prices means better yields.

        Those policies might include:

        Zero CGT on new housing construction.
        Government funding of the servicing costs of new housing …to be recovered via rates on all housing or a commonwealth land tax.
        Removal of GST on new housing construction
        Regulate the supply of credit for investment in existing housing – by fixing the interest rates on mortages secured by existing property higher than the prevailing rate for loans secured by new housing.

        The LNP might allow in labour competition for positions held by ALP supporters but generally they know not to bite the upper 30-40% too hard.

        • “The upper 5% don’t decide elections nor do the upper 1%.”
          Their donations definitely help, and have a LARGE influence on the actual policies implemented eg mass immigration.

        • drsmithyMEMBER

          Removal of GST on new housing construction

          Wouldn’t this one just go straight into higher prices ?

  4. Jumping jack flash

    As predicted it comes down to who has a greater share of the government’s ear. Big business or the RBA.

    History shows that its usually businesses who get the nod.

    The battle will be between the dumb and continuously recycled CPI suppressing policy to keep prices and wages low, forged back in 2007 when our leaders still had a semblence of a clue and were capable of some independent thought,

    or the CPI inducing policy of the RBA and the banks to grow the debt and make everyone rich from piles of other people’s debt, for the benefit of the banks of course.

    The government will clearly choose the worst possible one, considering the inflationary tidal wave thats just about to sweep around the planet.

  5. Haven’t seen an article on NSW Gov’s 2.5% public sector cap – a return to BAU. Expecting UE will support it though, as it aligns with the RBA’s 3% wage growth target and should help private sector wages.

    I do recall though calls for public sector rises to be tied to private – which this is at odds with – and at odds with wage growth.

  6. So what’s the RB outcome here? An inability to raise rates (and desire to hold down the medium end of the curve) unless inflation flash’s red across multiple quarters?

    Anyone seen a response from the ALP one the new migration policies above……? Looks like BAU for the fake opposition.

    • Jumping jack flash

      Interest rates surely will rise, but it needs to be done at the right time.

      The right time is after CPI sweeps the planet caused by unprecedented COVID stimulus, in turn causing wages rise as a result.

      Basically an indirect banking bailout where everyone is happy, and if done right will kick off perpetual debt growth, the bankers’ holy grail.

      If done wrong then we get stagflation, and it’ll be brutal.

  7. This is like MPLOL but for wages, they are just talking BS to placate the masses, nothing is every going to change in the push for mass immigration to support ever increasing house prices, especially now that the 500 billion stimulus splurge is fading.