Australian workers are expected to continue struggling financially until 2040 even though wage rises are now outpacing inflation – as mortgage repayments squeeze borrowers.
Treasurer Jim Chalmers and new Employment Minister Amanda Rishworth last week hailed the strongest real wages growth in five years.
‘Under Labor, more Australians are working, earning more and keeping more of what they earn,’ they said.
‘The government’s policies are driving strong and sustainable wage growth for workers.
‘This is the strongest rate of annual real wage growth in five years.’
But MacroBusiness chief economist Leith van Onselen said Australian workers were still going backwards financially, despite enjoying real wage increases since the end of 2023, where pay levels have risen at a faster pace than inflation.
‘It’s a pretty bad situation there whether you adjust wages for inflation or the cost of living of employees,’ he told 2GB.
‘The disturbing thing about this is that real wages in Australia aren’t expected to pick up for a long, long time; aren’t expected to recover to what they were at their peak – for a very long time, potentially 2040.’
Australian workers are expected to continue struggling financially until 2040 even though wage rises are now outpacing inflation – as mortgage repayments squeeze borrowers
His forecasts for declining living standards until 2040 were based on Reserve Bank predictions for the labour market and inflation.
‘Real wages may not recover until 2040 which is absolutely extraordinary when you think about it.
‘This post-pandemic cost-of-living crisis is likely to persist for many years.’
Overall wages rose by 3.4 per cent in the year to March, which was well above the headline inflation rate of 2.4 per cent.
This meant a real wage increase of one per cent.
‘It sounds decent on the face of it but the problem with it is that when you adjust for inflation, Australia’s real wages are still tracking 6.1 per cent below their mid-2020 peak,’ Mr van Onselen said.
Another Australian Bureau of Statistics measure showed employee living costs climbing by 3.4 per cent in the year to March – which was the same as the wage price index.
This effectively meant Australian workers paying off a mortgage or battling high rents had no increase in the wages, adjusted for living costs.
Treasurer Jim Chalmers and new Employment Minister Amanda Rishworth last week hailed the strongest real wages growth in five years
‘It’s effectively the inflation rate that adjusts for other things that workers have to pay,’ he said.
‘So, things like mortgage payments, stuff like that.
‘When you adjust the wage growth against the cost-of-living index for workers, what it shows is that wages after adjusting for the cost of living, are tracking 10.2 per cent below the mid-2020 peak.’
During the June quarter of 2020, covering the first Covid lockdowns, real wages were growing by 2.1 per cent.
This occurred as wages rose by 1.8 per cent as prices fell by an annual pace of 0.3 per cent.
Employee living costs were then falling by 2.1 per cent, which meant workers were getting a 3.9 per cent increase in wages, adjusted for living costs.
The prolonged lockdowns of 2021 in Sydney and Melbourne and Russia’s Ukraine invasion in 2022 saw inflation soar to levels last seen in 1990.
Australians were suffering real wage cuts from June 2021 to December 2023 as pay increases lagged well behind inflation.
MacroBusiness chief economist Leith van Onselen said Australian workers were still going backwards financially, despite enjoying real wage increases since the end of 2023, where pay levels have risen at a faster pace than inflation
While wages have outpaced inflation for more than a year now, the buying power of pay is back to where it was in late 2011.
‘Which is quite extraordinary – that suggests that Australians have experienced no real wage gain in more than 13 years,’ Mr van Onselen said.
‘The purchasing power of Australia’s wages is back to where it was 13 years ago.
‘It’s actually worse than that.’
This factors in the weak wages growth of the 2010s before workers suffered more than two years of real wage cuts before the Reserve Bank of Australia raised interest rates 13 times in 2022 and 2023.
The cost-of-living crisis was expected to persist even as the RBA cut rates again on Tuesday, with inflation back within its two to three per cent target.
‘When inflation is coming down, it doesn’t mean that prices are falling, it just means they’re not rising as quickly as they were,’ he said.
‘We’re lost all this purchasing power over the last several years.’
