Tuesday, 5 September 2017
Matters of Public Importance
Last week the Reserve Bank issued its 2017-18 corporate plan. No doubt everybody here had this marked in their calendar. It makes for interesting reading because it sets out what the RBA thinks are the key risks for its monetary policy functions in the year ahead. It draws attention to two particularly interesting sets of risks. The first is slow wages growth. The RBA identified, with classic economist 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 per cent. This is the lowest figure recorded by the ABS since it began the data series in the nineties. Private sector real wages have been negative. In other words, private sector wage earners are now worse off than they were 12 months ago.
The second set of interesting risks identified by the RBA relate to household debt. The RBA notes that there has been a substantial build-up in household debt, and it recognises that the high debt levels mean that monetary policies' ability to stimulate growth may be more limited than in the past. Let's be clear about what that refers to. Housing debt is now so high that the Reserve Bank is worried that it can't use interest rates to stave off a recession. The RBA is right to be concerned about debt. We are taking on more. Average home debt has doubled in real terms since the early 2000s. We're also taking longer to pay it off. Since 1990, the number of people with a mortgage debt has doubled in the 45-to-55 age group and has tripled in the 55-to-65 age group. People are entering retirement with mortgage debt. People who can't afford that level of debt are being locked out altogether from the housing market, and the rate of home ownership for under 40s is 50 per cent less than what it was in the early 2000s. Those are the two key risks highlighted by the RBA—wage growth and housing affordability.
There's a lot in the economy that you can't control when you're in government. It's the worst-kept secret in Canberra. There are commodity price spikes, global recessions and cyclones that wipe out entire banana crops. But what about wages? You can do something about wages and housing affordability, but this government has not only refused to act but also refuses to even admit that these things are a problem. We will never forget that the former Treasurer's solution for housing affordability was to 'get a better job' or that the Minister for Finance, until recently, just denied that there was any kind of demand problem in housing. We shouldn't forget that, at the same time as the RBA is talking about the problems posed by slow wages growth, this government has been reducing incomes for the most vulnerable. It's been cutting penalty rates, cutting benefits and cutting payments. Its only solution for jobs and growth seems to be corporate tax cuts that deliver nothing more than dividends and share buybacks.
The Treasurer is still filling out the practise exercises from the back of a 1987 economics textbook. Today's economic problems are different, but the problem is that this government is so fixated on fighting the class war from decades ago that it cannot act on the issues that are facing people today. It cannot act on housing affordability, it cannot act on slow wages growth and it will not act on the root cause of soaring electricity prices. We know what the solutions to these problems are—reform to negative gearing to tackle the distortion of investment into that sector, a fairer tax system and empowering workers to bargain for higher wages. But what we also know is that this government will never have the vision to put those things in place.