2GB MONEY NEWS
THURSDAY, 1 AUGUST 2019
Subjects: HILDA, the Liberals’ record of stagnant wages and struggling productivity, the wage gap, Made in Australia.
ROSS GREENWOOD: One person I love to talk to about these types of things is Dr Andrew Leigh, the Shadow Assistant Minister for Treasury and also very prominent inside the economic thinking of the Labor Party as well. He’s on the line. Andrew, many thanks for your time.
ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY: Always a pleasure, Ross.
GREENWOOD: So off the back of some of these reports, you've done two things this week. You've written an op ed and basically looked at Australia's productivity crisis. We’ll come to that shortly, but you also gave a speech in the House of Representatives which was yesterday and that was in regards to the HILDA report, and what you see as being a widening gap between the haves and the have nots in Australia. Is it really as significant a crisis as you paint it as?
LEIGH: Ross, since the Liberals have come to office, the typical Australian household’s gotten poorer. When Tony Abbott took office, the typical Australian household earned $80,600 in disposable terms, and now after inflation they’re down to $80,100. So when people ask the question ‘am I better or worse off than when Tony Abbott became prime minister?’ the typical Australian household would have to say ‘I'm worse off’.
GREENWOOD: Okay. But can I just pick you up there because, let's be honest and say in the years leading up to the global economic crisis which of course Labor was in power for and then the aftermath of that, you had, you had incomes artificially inflated because of mining booms in Australia and you had periods of time where the average income in Australia pretty much rose $3000 a year, which was well above inflation, for a period of almost seven years straight. Now something had to happen because of that, and I’m not using that as an excuse, because quite clearly I know that incomes have been squeezed up, but surely there's a reaction to what had been an incredible growth in salaries and wages on average in that previous seven years or so?
LEIGH: Ross, it’s been a long time since 2013. So while I accept that the incomes might not have risen at the same pace as under the mining boom, the idea that they've actually gone backwards over the last six years is a real indictment of the Liberals’ failure to invest in productivity-boosting improvements. You and I both love productivity and recognise the importance of investing in individuals and institutions and infrastructure in order to boost long run productivity. But we're not seeing that. We're getting this stagnating economy, unemployment a percentage point higher than it is across the ditch in New Zealand or in Britain or the United States, a wage stagnation that's been setting in for the last five years now, a real problem in retail spending. And without the long term investments to make sure we boost education, we get the right transport networks in place, we're not going to get those productivity gains. Productivity has been mediocre and that's according to the Productivity Commission themselves, running at a tenth of its historical rates.
GREENWOOD: So that being the case, I mean the one thing you can see if you go around our major capital cities now is enormous amounts of infrastructure being built. Is there a lag here? In other words, have governments woken up maybe four or five years ago they're now starting to build that infrastructure, the rail networks that are required, and so as a result maybe we do get the productivity boost once those pieces of infrastructure are completed? And I recognise, as you would, that you can't stop. You've actually got to keep it going, and maybe we'd fallen way behind the curve when it came to keeping up with not only our rising population, but also the paucity of public infrastructure?
LEIGH: Well, we can hope for that lag effect to kick in, but hope isn't a plan. I worry that the government’s spent too little attention to projects on the Infrastructure Australia priority list and too much to projects that serve their political interests. We also haven't seen the sort of smart infrastructure in data, in the Internet of things, in a national broadband network that's connected by 21st century fibre rather than the copper technology of the 19th century. We haven't seen investment in infrastructure around our energy system and modernising the energy grid, in order to get efficiency gains through critical peak pricing and the rollout of smart meters. We haven't got the investments in a whole lot of smart public transport projects, where we know that we're going to have to put more money as our cities become clogged. So I think we could do infrastructure investment a whole lot smarter than we've been doing so far.
GREENWOOD: Okay. It's just one thing in your report that you gave in that speech to the House of Representatives. You said when you reduce unionisation in Australia, it means we see more inequality, a higher gender pay gap, a higher pay gap between Indigenous and non-Indigenous Australians, and more wage theft. Now leaving some of those issues aside, I want to pick you up on the gender pay gap because in the HILDA report it basically says that the gender pay gap is reducing. Now given the fact you also note that unionization in Australia is basically at a century long low, isn’t it a case that you could argue that - contrary to what your saying - is as a result of the reshaping of Australian households, the fact that there are now more women in the workforce, the fact that the gender gap in terms of wages is shrinking - not fast enough, I should say, but it is shrinking - that surely, maybe things are happening because market forces are right now at work?
LEIGH: I think the end of the mining construction boom is one of the factors that's narrowed the gender pay gap, because many of those who were employed in that mining construction boom were men. But certainly unions play a big part in reducing the gender pay gap. So one way I analysed this, crunching data from the HILDA survey myself, was to look at the gender pay gap among union and non-union workers. Among non-union workers in hourly terms, the gender pay gap is about 13 per cent. Among unionized workers, it's about half that, about 7 per cent. So unionized employees have half the gender pay gap of non unionized employees. In general, we know that unions push up wages, somewhere between 5 and 10 per cent. Now we know that unions campaign for those at the bottom of the distribution and so they're one of the strongest social forces towards a more egalitarian Australia. If you want to narrow the racial pay gap, the ethnic pay gap, the gender pay gap, then unions are part of the answer okay.
GREENWOOD: Okay. But that being the case, it's always a case of who pays, because you also argue in this particular speech about raising superannuation from the current 9 and a half per cent to then 12 per cent, and ultimately 15 per cent. While we've got a wages squeeze on, the real problem is that money will come out of workers’ pockets. And though you're right when you say that we’ll not have enough money when they hit their retirement years, the fact of the matter is a lot of people have their incomes squeezed now, as you identify. The problem is there's simply not enough money to go around, and that is one of the fundamental problems not just for business, for government, but also for families and households around the country.
LEIGH: Ross, I was making the point that we've got Liberal senators standing up on 15 per cent superannuation, saying that 12 per cent is too good for low wage workers. That doesn't seem a particularly fair approach to me. I certainly believe though that we need to push up superannuation contributions, so they provide retirement adequacy. At the same time though, we can tackle this problem of wage stagnation, which has a lot to do with the concentration in markets that you and I have spoken about in past conversations. We’ve got this decline in business start-up rates, an increase in the merger rate and the extent of monopoly power by large firms means that they are increasingly able to crunch down on wages. And so productivity growth has been lacklustre, but even lacklustre as it is, workers aren't getting their fair share of it-
GREENWOOD: So, you’re not concerned - just to pick up on that superannuation one - you're not concerned that if you raise the superannuation levy, not only does it take money out of the workers’ pockets who are being squeezed up, because it is compulsorily coming out of their pay like a tax, but it also plays into the hands of multi-millionaire funds managers who are making billions of dollars per year out of the superannuation system without adding a single jot of value necessarily. And what I say here is that basically, if you sit there and you perform averagely as a superannuation fund manager and don't lose your mandate, you keep on getting this extra money that keeps on giving piled in decade after decade, year after year on. And so as a result of that, it really does very much play into the hands of those people who are supplying to that industry, without necessarily doing an exceptional job.
LEIGH: Ross, you and I are on a unity ticket about the need to reduce the cost of superannuation. Our costs are higher than, for example, with the Canadian pension funds. I reckon if we could reduce the overheads in superannuation by 100 basis points, that would be a massive gamechanger for Australian workers and the Grattan Institute's done some terrific work on this. But that doesn't mean you don't also need to increase contribution rates in order to make sure that people can retire with dignity. When you put more money into superannuation, it compounds and so you get those sharemarket returns year after year, and you don't just get deferred earnings - you get deferred earnings plus sharemarket gains.
GREENWOOD: I want to take you to one last thing, because I was attracted by this in your thoughts and this was about the whole productivity crisis. And this is the idea of the Made in Australia movement. Now we know if you go around the world you'll see Made in Japan, made in America - it doesn't matter where it might be, but whether the Made in Australia brand has the same resonance and the same pride in Australian manufacturing and Australian products that we once might have had - I just wonder whether we take that stuff for granted, because certainly you also make the observation here that in the past two decades the output per hour has barely risen. I mean, this is an issue. We need to be proud and we need to purchase the stuff that we make right here in Australia.
LEIGH: I love going into innovative Australian firms and seeing what they're doing. But the fact is that when you look at this new Treasury research, it paints a pretty worrying picture about productivity of Australian firms. They look at the bottom 95 per cent of Australian firms and show that their productivity has barely budged since Sydney hosted the Olympics back in the year 2000. Then they look at the top five per cent they say ‘well, their productivity has risen, but not as fast as the top 5 per cent of firms in countries like Germany, the Netherlands and the United States’. So we're falling off that global productivity frontier, even with our top 5 per cent of firms, and that's a real challenge for Australian companies. We need to make sure they're investing in research and development, improving the quality of management - which we know on some metrics isn't as good as the international best practice - and that we’re creating space for start-up firms. We need more start-ups in Australia if we're going to create opportunities for workers.
GREENWOOD: And certainly also export dollars into the future. Always great to have you, chat you on the program, Andrew. We’ll do it again very, very shortly.
LEIGH: Terrific, Ross.
GREENWOOD: The Shadow Assistant Minister for Treasury with the Labor Party, Dr Andrew Leigh, and Andrew many thanks for your time.
LEIGH: A pleasure.
Authorised by Noah Carroll ALP Canberra.