Check against delivery

Last week the Reserve Bank issued its 2017-18 corporate plan. No doubt this was marked in everyone’s calendar. It makes for interesting reading, however, because it sets out what the RBA thinks are the key risks for its monetary policy functions in the year ahead.

It drew attention to two sets of risks that I think are interesting.

The first is slow wages growth. The RBA identified (with classic understatement) that “wage growth has declined to low levels in recent years”. In fact, over the last year overall annual Wage Price Index growth has been at almost exactly 1.9%. This is the lowest figure recorded by the ABS since it began the data series in the 90s.[1]

Private sector real wages growth this year has been negative. In other words, private sector wage earners are worse off now than they were 12 months ago[2]

The second interesting set of risks identified by the RBA is household debt. The RBA noted a “substantial build up” in household debt and recognised that “the high debt levels mean that monetary policy’s ability to stimulate growth may be more limited than in the past.” We should be clear about what this refers to –housing debt is now so high that the Reserve Bank is worried it can’t use interest rates to stave off recession.

The RBA is right to be concerned about debt. We are taking on more: average home debt doubled in real terms since the early 2000s.[3] We are also taking longer to pay it off – since 1990 the number of people with mortgage debt has doubled for the 45 to 55s, and tripled for the 55s to 65s.[4] People who can’t afford this level of debt are being locked out of the housing market. The rate of home ownership for under 40s is almost 50% less than in the early 2000s.[5]

Wages growth and housing affordability. Two very interesting risks to be highlighted by the RBA, because they are risks that unequivocally are influenced by government policy.

There is a lot about the economy that you can’t control in government – commodity price spikes, global recessions, a cyclone that wipes out an entire banana crop.

But wages and housing affordability – you can do something about those.

And this government has not only refused to act–they’ve refused to even admit that they are a problem.

We should never forget that the former Treasurer’s solution for housing affordability was to get a better job, and that the Finance Minister has denied for years that there was a demand problem in housing.

And we should never forget that at the same time the RBA is talking about the problems posed by slow wages growth, this Government has been putting reducing incomes for the most vulnerable:

-         Cutting penalty rates

-         Cutting benefits and payments

Instead, its only solution for delivering ‘jobs and growth’ seems to be corporate tax cuts that will deliver nothing except more dividends and share buybacks.

The treasurer is still filling out the practice exercises from the back of a 1987 economics textbook. Today’s economic problems are different – even the IMF recognises that slow wages growth and inequality is holding economies back!

The problem is this government is so fixated on fighting the class war from decades ago that it can’t act on the issues affecting people today – housing affordability, slow wages growth, even electricity prices.

We know what the solutions are to these problems - reform to negative gearing, a fairer tax system, and empowering workers to bargain for higher wages.

And we know this government will never have the vision to put them in place.