Reserve Bank governor calls for removing Wages cap


The Reserve Bank governor Philip Lowe has called for the scrapping of all Government imposed wage caps. He argues that these caps on public sector pay rises are a factor in low wage growth for everyone.

For eight years ASMOF NSW has argued that the NSW Government’s Wages Policy is unfair and should be scrapped.

The government’s policy effectively denies us the basic right to collectively bargain over wages and conditions or to have members’ wages and conditions determined by an impartial and independent arbiter. In practice the policy enables the Government, in its capacity as an employer, to unilaterally determine the wages and conditions of its employees.

It is refreshing when the RBA supports this argument, saying it would like to see wage growth across the economy of more than 3%.

As any first-year economics student could tell you, the comments from Lowe are not that radical. The economic stimulus would come from more money in the pockets a lot of public servants employed by states and territories across the county. And on the flip side the wage caps in the public sector are cementing low wage norms across the country, because the norm is now 2% to 2.5%, and partly that’s coming from the decisions that are taken by the state governments.

In their report False Economies - The Unintended Consequences of NSW Public Sector Wage Restraint, researches Troy Henderson and Jim Stanford consider the unintended consequences of the NSW Government’s Wages Policy. They found five unintended, harmful side-effects of the ongoing wage cap, including:

  1. Over the five years from 2011 through 2016, the state’s public-sector wage suppression reduced consumer spending in the state by a cumulative total of some $3.4 billion, harming businesses large and small.
  2. Australia’s national GDP was reduced by an estimated cumulative total of almost $8 billion over the 2011-16 period.
  3. The NSW government’s wage austerity therefore reduced its own revenue (through that reduction in GDP) by an estimated $1.2 billion over the 2001-16 period.
  4. Each public-sector worker’s “workload” increased by 7.5 percent in the last five years – yet the wages policy in fact suppresses true productivity growth in the public sector.
  5. The NSW government’s extraordinary interventions, removing normal wage bargaining rights from a significant and influential section of the state labour market, have contributed to the unprecedented stagnation of wages in the overall state labour market – one that the government itself admits is hampering both economic growth and fiscal well-being.

The longer the wage cap remains in place, the larger will these costs (of foregone consumer spending, offsetting reductions in state revenues, and the spill over impact onto private labour market outcomes) become.

That is why we will continue to campaign to have the NSW wages cap removed.