It’s never been a better time to be a capitalist in Australia

Regular readers will know that I have been running hard against the notion that Australia faces a wage-price spiral, instead pinning the blame for domestically-driven inflationary pressures on businesses jacking up prices and earning fat profits.

The latest March quarter Australian national accounts proved my contention, with Australia’s real unit labour cost (ULC), which according to the Australian Bureau of Statistics “are an indicator of the average cost of labour per unit of output produced in the economy” and “are a measure of the costs associated with the employment of labour, adjusted for labour productivity”, collapsing 6.3% below their pre-pandemic level:

Real unit labour costs

Australia’s real ULC has plummeted over the pandemic.

At the same time, the share of national income going to businesses via profits hit a record high in the March quarter while workers share of national income (via wages) languished near an all-time low:

Share of total factor income

Business profits boom while workers go bust.

With this background in mind, it was heartening to read The Australia Institute’s chief economist, Richard Denniss, compressively dismantle the latest wage-inflation scaremongering in The New Daily. As Denniss correctly puts it, Australia is facing a “price-profit spiral” and it “has never been a better time to be a capitalist in Australia”. So why hasn’t “the RBA told Australian businesses to pull their heads in”:

The rhetoric of a ‘wage-price spiral’ is hardwired into Australia’s debates about inflation, but the reality is we are currently in a price-profit spiral.

As prices surge faster than they have in decades, and wages fall, the share of gross domestic product (GDP) going to profits is at record highs. It has never been a better time to be a capitalist in Australia, but it is workers who are being asked to tighten their belts…

Imagine if, instead of asking workers to tighten their belts, the RBA told Australian businesses to pull their heads in.

And imagine if we didn’t just introduce a windfall profits tax on the gas and coal industry, which is making bumper profits off the back of Putin’s brutal war, but used it to push down the cost of education or child care.

Australia has plenty of options for controlling inflation – if we want to look for them…

Imposing further real wage cuts on workers will definitely reduce business costs, but there is no guarantee it will lead to lower prices as firms may just continue to charge what ‘the market will bear’…

Our energy, retail, transport, grocery, banking and retail business are among the most concentrated and most profitable in the world. That’s why we talk about cafes so much.

It’s considered impolite to point out that profits are surging in Australia, and anyone who does so will be reminded how tough cafes and small businesses are doing it at the moment…

But whether we like our local cafe owner or not, real wage decline is not good for workers – it’s not good for the economy and it’s not a fair way to deal with the recent surge in the prices of energy and some imported components…

The cost of medicine, child care, aged care, education, electricity, public housing, public transport and a wide range of other services are all directly influenced by state and federal government policies. If we wanted to control inflation we know how to do it.

It’s true that spending more money subsidising the cost of public services could lead to bigger budget deficits and possibly more inflation, but again, if we really wanted to solve that problem we have no shortage of policy options.

We could introduce a windfall profits tax on the gas industry, lift the super-profits tax already levied on the banks, and collect a lot more tax from multinationals like Google and Facebook that pay virtually no tax in Australia.

These policies would not only solve budgetary problems but also address inequality.

Cutting the wages of ordinary workers and lifting the interest rates paid by those with mortgages are the laziest and least equitable ways to lower inflation imaginable.

Truer words have never been written in the mainstream media (only on independent sites like MB).

Why hasn’t the RBA fired a warning shot at businesses for driving prices (inflation) higher, instead of attacking workers whose real wages (and share of national income) has fallen? And why hasn’t the RBA called for East Coast gas reservation and coal/gas export controls and super profits taxes to delink Australian energy prices from the global market to bring down inflation?

It’s almost like the RBA’s rhetoric on wages was written by the business lobby. The RBA does have five representatives of the business community on its board, so maybe it’s just toeing the line.

Unconventional Economist
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  1. It’s all ok because we’ve got good, healthy, high business tax rates and can capture super-profits and return them to the people via government support…oh, wait…

    Errr…maybe it’s ok because the people that need it have plenty of shares in these super-profit companies and can reap the benefits of the super-profits via share price and dividend increases? No?

    Oh, dear.

  2. I hear drugs are cool. Sounds like honesty doesnt pay when you live in Australia.

    Somebody once told me that they believe only 10% of crimes in this country are ever actually prosecuted. Our enforcement is pretty weak.

  3. DingwallMEMBER

    A conga line of Labor and Liberal governments presiding over that decline ………. all well and good to point the finger at the RBA but these governments did absolutely nothing to reverse it and, in fact, worked hard to make it so.,

    • SuperfluousMEMBER

      yep – no way out now…eventually the income share falls below the point that sustains ever increasing profits…