Slade Brockman (WA, Liberal Party) Share this | Link to this | Hansard source

First of all, I want to give a shout-out to the Young Liberal Movement of Western Australia and in particular their current president, Jacob Fowler, who has developed an internship program for the Young Liberals. I've had a chance now to have a couple of interns through my office. The contribution I'll make tonight is based on the work from the latest of those interns, Nathan Cuthbertson, an outstanding young man, currently a university student and also working for a Western Australian research organisation. It has been a great joy to have him in my office and have his contribution.

I asked Nathan to have a look at one of the key issues that's facing us at the moment. The issue that we sat down and discussed was inflation. Inflation is a scourge. Inflation in our society today is unacceptably high. In fact, we now have the real danger of inflation becoming entrenched. There has been a recent decision to increase the minimum wage by 5.75 per cent. We have seen a number of calls from the union movement right across Australia for wage increases in the order of 10, 15 and 20 per cent and higher. All of this has combined to cement and entrench that scourge of inflation in our economy. It also makes the job of the RBA that much harder. It makes the problem likely to persist longer than it needs to. That's why we must be very aware of this phenomenon of a wage-price spiral.

The RBA governor, Philip Lowe, spoke about it at the annual CEDA address in November last year. He said:

I know it's very difficult for people to accept the idea that wages don't rise with inflation … and people are experiencing a decline in real wages. That's tough. The alternative, though, is more difficult.

And this is a really key point from Philip Lowe. It is hard to see the rises in inflation that we are seeing at the moment and the declines in real wages that this Labor government has overseen. But what the RBA is doing is necessary in order to fight this ugly scourge of inflation that risks becoming entrenched in our economy.

If wages were to rise in line with inflation we could actually expect only more economic misery. This is because inflation increases expectations. If employers have higher wage costs they pass this on in price rises, which of course leads to more inflation. This is the wage-price spiral. Lowe reiterated this when speaking at the Morgan Stanley Sydney summit, stating:

If we accept that premise, inflation at 7% and wage rises match that, what do you think inflation will be next year? It will be higher again and then we will have to have higher wage increases again.

The important question is, then, how can we improve wages? We all in this place want to see wage rises. We all want to see Australians better off; we want to see Australian families better off. The way we do that is to improve productivity. We need to see those corresponding rises in productivity. Without that, wage rises are inflationary.

We've seen the Prime Minister being very slow and very late coming to the party in understanding the importance of productivity increases in the economy. Yet at the same time that he claims to recognise the importance of productivity increases we also see the 'same job, same pay' legislation that Labor is planning to introduce, which can only make the situation worse. We've already seen round one of Labor's changes to the IR system, which introduces less flexibility. It reduces flexibility in our labour market and reintroduces inflexibility, and the second tranche of IR reforms that the government is proposing will only add to that.

This inflexibility in the labour market places downward pressure on productivity. For experienced workers, where is the reward for their years of service? For new workers, where is the incentive to work harder for more pay? If we want to boost productivity we need a system that motivates people, a system that promotes a dynamic and productive workplace. These workplace reforms are dangerous. No two businesses are the same, no two jobs are the same and no two workers are the same, and they shouldn't be treated as such. They shouldn't be treated as if they're some sort of automatons, some sort of robots, that can just go from one job to another. Experience matters. Competence matters. Getting to know your boss matters. Being in a workplace for a period of time matters and should be able to be rewarded. Labour markets should be flexible and adaptable to meet the needs of a dynamic economy. Centralised reforms like the ones we've seen in the past and the ones that are foreshadowed will only dampen our ability to recover and grow and see that scourge of inflation dealt with in a sensible way.

When employers and their employees reach a mutual decision at the business level, this is the best outcome for all. It means fair reward and it means, potentially, increases in productivity. Businesses should be free to reward experience and effort. Centralised decision-making in the way that is foreshadowed will only hinder productivity growth. And when productivity does not rise, what is the end result of that? It means wages will not rise. We actually saw, over the last period of Liberal government, real wage rises. Contrary to the myths spread by those opposite, real wages rose in the period of the last coalition government. What have we seen under Labor? We've seen real wages plummeting in the face of inflation.

The claim that wage rises do not lead to inflation is simply not true. How can one expect inflation to fall below five per cent when the price of labour has been increasing above five per cent? Wage rises will only make further interest rate rises much more likely. Wage rises, especially now, when not linked to productivity, are inflationary. The RBA knows this. Mr Lowe has said this a number of times. Every economist knows that. Real wages will actually continue to fall until inflation is addressed. Until inflation is addressed, Australian families and Australian employers will suffer.

James McGrath (Queensland, Liberal National Party, Shadow Assistant Minister to the Leader of the Opposition) Share this | Link to this | Hansard source

Before I call you, Senator Lambie, I will just explain what is happening. Even though we are currently in the 10-minute speeches, the standing orders give precedence to five-minute speeches over 10-minute speeches, so we will now go back to the five-minute speeches.