New wage growth figures bad news for workers and the budget

Latest data from the ABS shows wages growth stuck at 1.9% with no signs of any pick up. Wages growth has now been stuck at roughly this level for the last 3 years.  The ABS has now confirmed that wages growth is running at a slower rate than inflation (Consumer Price Index).

According to the CPI prices have increased by 2.1% over the last year while wages growth has only increased 1.9%. This means people’s real wages have been falling over the last year.

“This has large implications for the budget which is predicting strong wages growth over the next 4 years,” Senior Economist at The Australia Institute, Matt Grudnoff said.

“The budget has predicted average wages growth of over 3% over the next 4 years and this underpins the much hyped ‘return to surplus’.

“The latest ABS data should be of concern to the government if they truly hope to see a reduction in the deficit. It is evidence that the 2020-21 surplus is based on overly optimistic wage growth assumptions and that any surplus is increasingly unlikely.

Figure. Budget predictions vs actual wage growth

WPI and budget estimates

Each of this government’s budgets has consistently made overly optimistic growth assumptions. This has meant each budget has predicted a rapidly decreasing budget deficit.

“But when these rosy assumptions have not materialised we have been left with a budget deficit that has remained at roughly the same level,” Grudnoff said.

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