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Wage growth to crash to record lows in hit to wallets and federal budget

That will be slashed in Thursday’s update as high unemployment, which has reached a 22-year high of 7.4 per cent, and a crash in business profits weigh on wages.

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ANZ senior economist Catherine Birch said that once inflation is taken into account many people would see a fall in the value of their take-home pay this year.

She said while a drop in real wages had occurred previously, this time people would have to endure an extended period of financial pain.

“We still think it will be below 1 per cent in 2020, so it’s extremely unlikely we’ll be around 3 per cent in the next five years,” she said.

“At the moment it’s hard enough to forecast what’s going to happen in the next few months let alone five years. But we haven’t been at 3 per cent since 2013 and we were struggling even before the pandemic.”

Late last year, ahead of the coronavirus pandemic, Reserve Bank governor Philip Lowe warned that flat real wages were “diminishing our sense of shared prosperity”, adding parts of the community were questioning if they had shared in the nation’s economic success.

Dr Lowe said he hoped to see wages growth of at least 3 per cent, noting that government pay freezes were hurting overall income growth.

Since the pandemic, the bank has sharply downgraded its own forecasts for wages. It now expects them to grow by a record low 1.5 per cent this year and then only 1.75 per cent through 2021.

Governments have also introduced pay freezes on public servants.

Deloitte Access Economics director Chris Richardson said even after the recent minimum wage rise of $13 a week staggered across different industries, people should not expect an injection of cash into their wallets. “It’s like wages growth has had a valium put down its throat,” he said.

Mr Richardson said the slow wages growth would deliver a double whammy to the federal budget.

It would hit the bottom line with less personal income tax flowing into Treasury while fewer people would be pushed into higher tax brackets over time.

Wages growth has had a valium pushed down its throat, according to Deloitte Access Economics director Chris Richardson.

Wages growth has had a valium pushed down its throat, according to Deloitte Access Economics director Chris Richardson.Credit:Alex Ellinghausen

Mr Richardson said the only way to get a solid increase in wages was through productivity reforms but these were also politically dangerous.

“The politics of things that you could do are incredibly difficult,” he said.

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Assistant professor of economics at George Washington University Steven Hamilton said to get higher wages would take more than just boosting economic growth.

Prime Minister Scott Morrison has argued growth will have to average at least 1 percentage point above the trend – about 3.75 per cent – for the next five years to get on top of the nation’s increased debt.

Professor Hamilton said just boosting growth without making sure some of that flowed through to workers would leave millions worse off.

“Research shows the decline of the unions and the increasing dominance of larger employers have pushed down the workers’ share,” he said.

“To combat these forces, the government might need to get creative – with policies to encourage businesses to more aggressively compete for workers, or wage subsidies that encourage more hours and greater workforce participation.”

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