SYDNEY, Australia—Assistant Minister to the Prime Minister, Patrick Gorman, said it was “disappointing” that the individual who leaked an exchange between Labor MPs and the Reserve Bank of Australia (RBA) Governor Philip Lowe, saying that they were trying to damage the government.
“There’s plenty of ways to have a 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. “It’s disrespectful to fellow Members of Parliament, it’s disrespectful to the RBA governor, and it does make the operations of the Parliament less effective.”
The comments follow reports by the Australian Financial Review that the RBA governor allegedly warned Labor backbenchers against any wage increases that were not tied to increased productivity. Otherwise, he would have no choice but to further raise interest rates in response.
Lowe had made the warning—that wage increases without ties to productivity would be inflationary—to the economics committee.
But Labor members on the committee reportedly accused Lowe of demonising wage rises by his warning.
The RBA has been trying to achieve the “narrow path,” where Australia’s inflation rate returns back to the target rate of 2 to 3 percent while avoiding a recession.
According to internal modelling from September 2022, the central bank expected that it could achieve walking the narrow path by the end of 2024 with the cash rate peaking at 4.8 percent.
But Lowe allegedly sounded pessimistic about successfully achieving this before his time as RBA governor ends in September.
This is because the Labor government recently agreed to huge wage increases to the public sector—including a 15 percent increase for aged care workers and 10.5 percent over three years for all Commonwealth public servants. The hike is far beyond the current inflation rate of 7 percent.
The pay increase for aged care workers alone will cost taxpayers an estimated $11.3 billion (US$7.37 billion) over four years.
Pushing back against criticism that such wage hikes would be inflationary, the government said there would be no problems.
“Nothing we have seen in terms of how inflation is tracking and moderating would lead us to believe wages is a contributor,” Finance Minister Katy Gallagher told AAP of her assessment.
“There’s a whole range of other reasons, and even when you break down the inflation stuff, it’s not being caused by wages.”
Is Australia on Verge of Prices-Wages Spiral?
Referring to statements made on record by Lowe that the risk of a prices-wages spiral was low, Gorman said that the government was working to make sure wages didn’t continue to track behind inflation.
“We’re trying to get wages moving. We are unapologetic about that,” Gorman said. “I want to make sure that cleaners, security guards on the minimum wage get a decent pay increase.”
A prices-wages spiral is where wage increases try to “catch up” to high inflation, which in turn causes more inflation.
However, since the RBA updated its monetary policy statement in April, the wording of a “low” prices-wages spiral risk has disappeared, and was replaced with a note that the RBA Board remained alert of spiral risks and would continue to pay close attention.
“Board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the historically low rate of unemployment,” Lowe said in the latest May statement.
But Gorman instead laid the blame of inflation on Russia’s war on Ukraine and instability in global financial markets, as well as partly blaming the ongoing negotiations for the debt ceiling in the United States.
“All of these [factors] were part of our thinking as we carefully put together the budget that we released just over two weeks ago, making sure that while we acted, we can make sure that we were supporting people with sensible cost of living relief,” he said.
During a Senate estimates committee hearing in April, deputy RBA governor Michele Bullock acknowledged that while the situation in Ukraine and COVID-19 supply chain impacts have contributed to inflation, expansionary fiscal and monetary policies by governments, which have seen the injecting of around $600 billion into the Australian economy since 2019, in conjunction with extremely low interest rates, have also contributed to driving up inflation.
Unions at the forefront of pushing for this pay rise said their members “deserved” the increase so they could keep up with the inflated cost of living.
The Community and Public Sector Union questioned whether the 10.5 percent wage increase over three years would be enough. They initially demanded for 20 percent over three years.
Former Liberal Senator Eric Abetz highlighted that despite the downplaying of inflation concerns by the government and unions, “wage increases not based on productivity increases are, by their very nature, inflationary.”
“Not only will there be a higher wage bill, but there will also be less productivity and an increase in the number of public servants,” he wrote in The Epoch Times.
“The inflation monster will be fed. This is not sustainable.”
