Millions of Australians may not receive wages for years as the economy struggles to recover from the impact of the coronavirus.
In a stark warning on Thursday, Federal Treasurer Josh Frydenberg said wage growth is likely to remain subdued “ at least for years to come. ”
In the April to June quarter, wages rose just 0.2 percent – the lowest increase in 22 years – and that was before Victoria’s second lockdown caused even more economic damage.
In the three months to June, wages rose by only 0.2 percent. Mining salaries (pictured are two engineers) were up 0.5 percent
Millions of Australians may not receive a salary for years as the economy struggles to recover from the impact of the coronavirus. Pictured: A cafe employee in Melbourne
The worst blow categories were construction and professional services, which saw a 0.5 percent drop in pay, and other services, including personal care and maintenance, which dropped 0.9 percent.
Wages in electricity, gas, water and waste services increased 0.6 percent, while salaries in education and mining increased 0.5 percent and financial wages increased 0.4 percent.
Speaking to the Australian Chamber of Commerce and Industry, Mr. Frydenberg said the effects of the coronavirus-induced recession will last for many years.
The unemployment rate in Australia, which was five percent before the pandemic, was 7.5 percent in July and 6.8 percent in August.
“As with previous recessions, here and around the world, it will take time for the unemployment rate to return to pre-crisis levels, despite our unprecedented response,” said the treasurer.
He said the other big change in the economy will be a “persistently lower level of prices and wages.”
Retail wages rose by only 0.1 percent in the June quarter. Pictured: a store in Sydney
The hardest hit categories were construction (pictured) and professional services, which dropped wages by 0.5 percent, and other services, including personal care and maintenance, which fell 0.9 percent in the three months to June.
With high reserve capacity in the economy, it will take some time for inflation to return to the middle of the Reserve Bank’s target range [of 2-3 per cent].
“And wage growth is likely to remain subdued for years to come, until the job market tightens.”
In the June quarter, inflation was -0.3 percent, meaning prices fell slightly.
Meanwhile, seasonally adjusted wages in the private sector rose 0.1 percent and wages in the public sector rose 0.6 percent, resulting in an overall increase of only 0.2 percent.
That is the lowest increase since the wage price index was introduced in 1998.
These changes in the underlying economy, which stem directly from the Covid-19 recession, will weaken our fiscal position in the medium term, even if our targeted policy support [including JobKeeper and a boosted JobSeeker] is being phased out, ‘said Mr Frydenberg.
Average weekly earnings by industry in May 2020
Mining: $ 2,697.50
Production: $ 1,526.80
Electricity, Gas, Water, and Waste: $ 1,907.70
Construction: $ 1,683.00
Wholesale: $ 1,591.50
Retail: $ 1,259.80
Lodging and Food Services: $ 1,139.30
Transportation, Mail, and Storage: $ 1,662.10
Information Media and Telecommunications: $ 2,033.40
Financial and Insurance Services: $ 2,015.80
Rental, Hiring, and Real Estate Services: $ 1,561.30
Professional, Scientific, and Technical Services: $ 1,965.70
Administrative and Support Services: $ 1,537.90
Public Administration and Security: $ 1,801.90
Education and Training: $ 1,825.70
Health Care and Social Assistance: $ 1,624.60
Arts and Recreation Services: $ 1,523.80
Other Services: $ 1,339.30
Total All Industries: $ 1,713.90
The treasurer promised in his Oct. 6 budget to boost demand through government spending to help create jobs and investment.
“That could be in the form of incentives for companies to invest, it could be in the form of other initiatives that bring infrastructure forward,” he said.
“We are taking a series of measures that will put more money into the economy and help support jobs.”
Most economists predict that the budget will be in deficit of more than $ 200 billion.
“It will be significant, but it reflects the challenge we are facing,” said Mr Frydenberg.
Australian Treasurer Josh Frydenberg arrives Thursday to deliver a speech on tax strategy at Parliament House in Canberra
“We had no choice but to provide this economic support to the people who need it most, and as a result Australia has done so much better than other countries through this economic crisis.”
The treasurer outlined a two-step strategy that provides financial support during the coronavirus recovery before rebuilding the budget and keeping taxes low.
An important part of the plan is to maintain the existing tax ceiling as a share of the economy, which is 23.9 percent.
Mr. Frydenberg maintains that the goal remains to get Australia out of debt in his lifetime.
“But we know that the economic shock has been like no other,” he said.
‘Australia is doing a lot better than other countries, but there is still a big hole in the economy.’
In the quarter of June, Australia entered officially into recession for the first time since 1990.
What did the treasurer reveal in his pre-budget speech?
The October 6 federal budget will focus on two phases. First, boost business and consumer confidence until the unemployment rate falls below six percent again. And second, shift from temporary and targeted support to structural reforms to increase the economy’s potential and improve the bottom line.
“The 2020/21 budget includes our detailed plans to get Australians back to work and businesses back to work in a COVID-safe way,” said Treasurer Josh Frydenberg.
* Although the unemployment rate was 6.8 percent in August, it is expected to increase in the coming months due to the closure in Victoria and as people return to work to look for work
* To date, the government has announced $ 314 billion in support, or about 15.8 percent of GDP
* The states provided $ 55 billion or about 2.8 percent of the GSP
* By the end of 2020-2021, Australia’s real economy is projected to be approximately six percent smaller than projected in the 2019/20 semi-annual update
* Net migration abroad is expected to decline from around 154,000 in 2019/20 to outflows in 2020/21 and 2021/22 (i.e. lost migrants will not be replaced in numbers)
* Population growth is expected to slow to its lowest rate in more than a century
* Wage growth is likely to remain subdued for at least the coming years, until the labor market tightens
* A smaller economy will generate less revenue for the government in the medium term (July economic update puts total revenue as a share of GDP at 24 percent in 2020/21)
* Payments such as pensions and benefits are expected to be ‘significantly higher’ than pre-COVID levels as a percentage of GDP
* The budget aims to contain the size of the government and keep the tax-to-GDP ratio below 23.9 percent
* The coalition aims for an average budget surplus over the economic cycle, aiming for surpluses of at least one percent of GDP “if economic conditions permit.”