Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

In a curious speech last year, the Prime Minister's No. 1 business advisor, Maurice Newman said:

… Australian wage rates are very high by international standards and our system is dogged by rigidities.

In a carefully crafted takedown, the noted economist Stephen Koukoulas observed that Mr Newman had kicked an own goal. He cited a number of nations with lower minimum wage rates than Australia but in each case the country he cited had a higher unemployment rate. The example was most extreme in the case of Canada—which Mr Newman curiously referred to as our closest competitor—which, in the 38 years since 1975, has never had an unemployment rate below 5.9 per cent, compared to Australia, where the unemployment had at the time not been above 5.9 per cent since 2003. So much for low wages helping labour market efficiency and driving unemployment lower.

The facts fly in the face of the Prime Minister's No. 1 business advisor, in much the same pattern as we are seeing for government advisers on climate change. Like Maurice Newman, Dick Warburton is a climate change sceptic and yet Australia is now seeing temperature records being broken across the board—the year of the highest temperatures on record, the summer of the highest temperatures on record and record hot spells dispelling the climate change deniers like Maurice Newman and Dick Warburton.

Today, a speech by Christopher Kent, of the Reserve Bank of Australia, went further and dispelled the views of Mr Newman on wages. In a speech titled 'Cyclical And Structural Changes in the Labour Market', Christopher Kent noted a number of points about the labour market. He noted, in particular, that the NAB business survey showed that wage growth has slowed over the past year. Wage outcomes of more than four per cent have become far less common than was the case a few years ago, and outcomes of two to three per cent are more common than outcomes of three to four per cent. He went on to note:

The slowing in wage growth across all industries has meant that firms have experienced relatively slow growth in their labour costs. This is more striking after accounting for the growth in the productivity of labour, which as I've already noted has picked up somewhat compared with the pace we had become accustomed to over much of the 2000s. Over the past year and a half, the growth in nominal wages has been matched by growth in labour productivity. As a result, there has been no increase in the cost of labour required to produce a unit of output.

In turn, slower growth in labour costs is having a beneficial effect on international competitiveness.

So the data gives the lie to the Prime Minister's No. 1 business advisor, who would have you believe that there is a wages break-out in Australia. The problem with the rhetoric about a wages break-out is that it distracts Australia from more pressing economic challenges. As Reserve Bank officials have noted many times when they have appeared before the House of Representatives Economics Committee, Australia does not have a deficit problem by comparison with other nations around the world. With debt levels peaking around a tenth of national income, Australia is extremely well placed compared to the typical developed country, whose debt is often nearly as large as, and in some cases larger than, their national income. Why does Australia have debt? We have it because we chose to step in and to support 200,000 jobs and tens of thousands of small businesses.

See this speech in context