Sunday May 28, 2023
SYDNEY, Australia - Deputy Prime Minister Patrick Gorman said it was "disappointing" that the person who leaked information exchanged between Labor MPs and Reserve Bank of Australia (RBA) Governor Philip Lowe was trying to damage the government.
"There are many ways to fight in Parliament. But breaching the confidentiality of a government committee is not the way to do it," he told Sky News Australia on Sunday. ."
The comments follow reports by the Australian Financial Review that the RBA governor is said to have warned Labor backbenchers against any pay rise that was not linked to increased productivity. Otherwise, he would have no choice but to raise interest rates further in response.
Lowe warned the Economic Committee - that raising wages without a link to productivity would be inflationary.
But Labor members of the committee reportedly accused Lowe of demonizing wage growth with his warning.
The RBA is trying to achieve a "narrow path" where Australia's inflation rate will return to its target rate of 2 to 3 per cent while avoiding a recession.
According to internal modeling from September 2022, the central bank expected it could achieve a narrow path by the end of 2024 with the cash rate peaking at 4.8 percent.
However, Lowe reportedly sounded pessimistic about successfully achieving this target before his tenure as RBA governor ends in September.
That's because the Labor government recently agreed to a huge public sector pay rise - including a 15 per cent rise for seniors and 10.5 per cent over three years for all Commonwealth civil servants. The increase is well beyond the current inflation rate of 7 percent.
The senior pay raise alone will cost taxpayers an estimated $11.3 billion ($7.37 billion) over four years.
The government rejected criticism that such a pay rise would be inflationary and said there would be no problems.
"Nothing we've seen in terms of how inflation is tracking and moderating would lead us to believe that wages are contributing to that," Finance Minister Katy Gallagher told AAP.
"There's a whole host of other reasons, and even if you break down inflation, it's not due to wages."
Is Australia on the brink of a price and wage spiral?
Referring to statements made by Lowe's that the risk of spiraling prices and wages was low, Gorman said the government was working to ensure wages did not continue to track inflation.
"We are trying to get wages moving. We make no apologies for that,” Gorman said. "I want to make sure that minimum wage cleaners and security guards get a decent raise."
A price-wage spiral is where wage increases try to "catch up" with high inflation, which in turn causes more inflation.
However, since the RBA updated its monetary policy statement in April, the wording of a "low" risk of spiraling prices and wages has disappeared, replaced by a note that the RBA Board remains alert to spiraling risks and will continue to pay close attention.
"The Board remains alert to the risk that expectations of continued high inflation will contribute to greater increases in both prices and wages, particularly given limited spare capacity in the economy and historically low unemployment," Lowe said in a statement last May.
But Gorman instead blamed inflation on Russia's war with Ukraine and instability in global financial markets, partly blaming the ongoing debt ceiling negotiations in the United States.
“All of these [factors] were part of our thinking when we carefully put together the budget that we published over two weeks ago to make sure that as we act, we can make sure that we are supporting people with reasonable cost of living relief. " he said.
During a Senate Estimates Committee hearing in April, RBA Deputy Governor Michele Bullock admitted that while the situation in Ukraine and the impact of the COVID-19 supply chain had contributed to inflation, the governments' expansionary fiscal and monetary policies, which have seen an injection of around $600 billion into the Australian economy since 2019 coupled with extremely low interest rates have also contributed to rising inflation.
The unions spearheading the push for the pay rise said their members "deserved" the increase to keep up with the inflated cost of living.
The Community and Public Sector Union questioned whether a 10.5 per cent pay rise over three years would be enough. They originally demanded 20 percent over three years.
Former Liberal senator Eric Abetz pointed out that despite the downplaying of inflation concerns by the government and unions, "wage growth that is not based on productivity gains is inherently inflationary".
"There will not only be higher wages, but also lower productivity and an increase in the number of civil servants," he wrote in The Epoch Times.
"The inflation monster will be fed." This is not sustainable."
