he wage price index (WPI) data released today reflects upward pressure on wages as the labour market remains tight. Wage growth increased to a ten year high of 3.7% annual growth over the year to March 2023.
Despite the rise, real wages are still declining as wage growth remains significantly below price growth. Deloitte Access Economics doesn’t expect to see real wage growth for the average Australian until the second half of 2024. Indeed, be careful what you wish for on the wages front – if wage growth does move above 4% in the next year it may signify embedded inflation and encourage the RBA towards more cash rate rises. A more modest pick-up in wages, while broader price growth comes down, will be a better outcome for squeezed household budgets.
The 2023-24 Budget sought to provide some relief to households struggling with declining real wages, higher mortgage repayments, and rising cost of living.
However, the Budget is thin on addressing Australia’s deteriorating productivity growth. Australia needs loftier goals when it comes to tax reform, which has the potential to simultaneously fix the structural deficit, realign incentives and boost the productive capacity of the economy.
In the latest edition of Budget Monitor (released prior to the Budget), Deloitte Access Economics presented examples of policy changes that, together with others, can both improve Australia’s tax mix and shift the budget back towards a more sustainable footing over time. Complemented by reforms to competition in markets, regulatory efficiencies, innovation and education reforms, and an improvement in the efficiency of public services, tax reform can drive economic growth with a better, more equitable, distribution of the economic pie.
A summary of three policy changes is provided below.
Good budget reform should go back to the purpose of reform – to build productive capacity, incentivise human agency, distribute economic gains fairly, and to shape the structure of our economy and the nature of our society.
Click here to see further explanation of Deloitte Access Economics’ independent analysis of the Federal Budget in our latest edition of Budget Monitor.
This blog was co-authored by Chelsea Boone, Economist at Deloitte Access Economics.