Productivity growth the key to wage rises - Transcript, 2GB Money News


Subjects: Interest rates, penalty rates, unfair dismissal protections, the need to boost productivity, the per capita recession, the Coalition’s lack of energy policy vision.

ROSS GREENWOOD: I think we might get on Andrew Leigh, the Assistant Shadow Minister for Treasury and Charities. He’s on the line right now. Andrew, many thanks for your time.


GREENWOOD: All right. The big issue here right now is and it comes - it doesn't matter which side of politics you're on, this is you know trans political, I think - the nation has got to find a way in which we can actually get some wages growth, get some economic growth. We're not bad. I mean, let's be honest. In global terms, we’re actually in pretty good shape. But the fact is there's a spark missing right now to try and get the country going again. You tell me what that spark is.

LEIGH: It's about a federal government that's willing to step up and take actions that will boost wages and boost the economy-

GREENWOOD: Okay, I got that. Simple, simple – that’s easy, let's stop there. But if you do that, if you do that right, that's easy to say right. I can say that, you can say that. But if you start trying to do that, right, then what happens is you risk blowing out the budget surplus. If you don't have a surplus, you've got debts rising, then you got interest payments rising. So where's the trade-off here? If you're in government, if you're on the other side of the fence making suggestions, where's the balance? Because you've got to be also economically responsible.

LEIGH: There’s policies like penalty rates, which don't blow out the budget deficit but do have an impact on wage growth. There’s also the settings of industrial relations. I mean, if you look at a global context Ross, we rank as pretty lax in terms of employment protection. So when you hear government ministers and backbenchers coming out and saying we ought to weaken unfair dismissal protections even further, then that's only going to make it harder for workers and going to drive down the wage share in the economy.

GREENWOOD: Okay, I'll jump in there again. I'll jump in there again, because the problem there is if you do exactly that, bring back you know sort of the extra penalty rates - there are penalty rates there, remember, for the weekends - but if you increase them back to where they were, of course there's a small business somewhere that has to pay that. The government doesn't pay it, but some small business pays it somewhere. So again, it's coming out of somebody's pocket. And the point of the problem is there's just not enough money rolling around the economy. So it's okay for government to say ‘the employers can pay’. The big employers have already traded off in their enterprise bargaining agreements, so it ends up being the small employers, the self-employed people who end up trying to either have to work themselves, work their guts out for not very much, or indeed that they've got to pay their employees more. So again there's a problem, is there not?

LEIGH: Ross, workers are also consumers. This is an idea that goes back to Henry Ford, who wanted to pay his workers enough so they could afford to buy his cars. We had Alan Oster, the Chief Economist of NAB, yesterday saying that the retail sector is currently facing ‘recessionary levels of activity’. We've had ME Bank releasing surveys this week, suggesting that only a third of households have seen their income go up and 40 per cent are living month-to-month. These are really troubling figures. The per-capita recession we're in now is the longest since the early 1980s.

GREENWOOD: I'm agreeing on all of that. I'm agreeing on all of that. But the nation is not in recession right, so there is money sort of sloshing around parts of the economy, but it's not actually hitting households right now. If anything, we’re kind of back to the mining boom days, where there's money going into the pockets of big mining companies, but it's actually not hitting the pockets of the East Coast workers who are finding themselves now having to work harder. So they're working two or three jobs in many cases. Many mothers in particular - I don't do that for sexist reasons, it's just the reality - more mothers coming into the workforce to try and make their families work, you know, sort of get more money through the door. More retired people or people who otherwise are of retirement age staying at work longer because they know that they need that money continuing to come through. So it's not as though Australians aren’t working hard - it's just they're working harder just trying to keep up, keep even.

LEIGH: That's right and in a technical sense, Ross, the problem is that productivity isn't rising. Productivity growth right now is a tenth of its historical average. And when we can get productivity growth going, then we can get those real wage gains. That involves investing in infrastructure and in people, making sure we got the institutions right. When you do that, you not only stimulate the economy in the short term, but you lay the path to prosperity in the long term, which is why productivity is so important to me.

GREENWOOD: Okay. So then is it not a case where maybe if you’re really going to take some sort of sacrifice, take one for the team, does that not come necessarily through the pump that if you were to cut company taxes - cut them pretty hard - that you might actually start to stimulate not only the employers of this world to take on more workers and to invest in capital, to try and build business because they've got an incentive to do so, that that might not also start to employ more people and therefore create more wages growth? Maybe it's got to start somewhere. I just wonder where it's going to start.

LEIGH: You heard the Business Council this week coming out and saying that they thought that the policy that Labor took to the last election, allowing more rapid depreciation of investments, would be a good one for the government to be looking at. Victoria University research suggests that gets three times the bang for buck of the company tax cut, because you're incentivizing new investment. That's the kind of innovative thinking that could get the economy going in a time in which really so many indicators are in the doldrums-

GREENWOOD: But, it's about communicating the message. I'll give you one small example. Paul Keating of course has come out famously and talked about the last election. This is him again, just a small reminder, on the 7.30 Report.

PAUL KEATING: It failed to understand the middle class economy that Bob Hawke and I created for Australia. If the cuts in tax expenditures had have been employed in reducing tax rates, then it would have been a big tax reform and I believe a success, a much more successful outcome.

GREENWOOD: So maybe that's the answer - Cut the taxes. Is that the real answer? But of course if you do that, short term it's actually going to cost you in the budget surplus.

LEIGH: In terms of reducing personal income taxes for the majority of workers, I'm totally with you there, Ross. We took to the last election a policy of more generous personal income tax cuts for more workers. And that’s ‘flow-up economics’ rather than ‘trickle-down economics’, a notion that you and I have spoken about before. We also, I think, need to make sure that we've got an energy policy that works for Australian firms. One of the reasons why firms are struggling right now is that Australia has no consistent long term energy policy, no settings in place since the government got rid of the carbon price mechanism and therefore no incentive for renewables investment, which is driving down energy costs around the rest of the world.

GREENWOOD: Or indeed any other form of energy generation, which could include coal fired power stations technically as well.

LEIGH: There’s very little appetite for that in the market. You don't see private investors going out looking at investing in coal, and that's because they see that as being a risk of a stranded asset. So it would be a strange government that would say ‘well, the private sector won't invest in coal fired power stations, but the government should do it instead’.

GREENWOOD: It's an interesting thing. I tell you what, it's always good to have you on the program. The Shadow Assistant Minister for Treasury  and Charities. We have a good chat about this stuff. It's a good debating point as to what is the spark that gets Australia going.

LEIGH: Sure is.

GREENWOOD: Andrew Leigh, many thanks for your time.

LEIGH: Thank you, Ross.


Authorised by  Paul Erickson, ALP, Canberra.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.