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The third way: why business and unions are both wrong

By Bryan Kavanagh - posted Wednesday, 24 August 2011

Newspaper editorials seem mystified that retail spending is down. They point to the fact that Australia's national debt, unlike other nations, is well under control, as though this is somehow germane to our commercial slowdown.

Editors also reflect that maybe online shopping is responsible for cutting a swathe through spending in the shops.

In an obvious effort to be optimistic, there's no mention of the world record ratio of household debt to disposable income, i.e. above 150 per cent, to which Australians have shackled themselves in recent years.


Many people have hit the stumbling block and been forced to cut back on their spending, but others, aware of the catastrophic effects of the financial collapse overseas, have set themselves on a debt reduction program. Accordingly, a slight downturn in the ratio nearer to the 150 per cent mark shows their efforts are beginning to work. Unfortunately, such reduction in household debt doesn't assist our economic performance.

Surely then Australia's world record household debt levels explains the collapse in consumer confidence and demand? Mortgage debt, of course, accounts for by far the greatest part of household debt, and credit cards for much of the rest.

So, how does politics' Left respond to this unwelcome slowdown?

Unions are looking for pay rises for their workers. They say this will help relieve their members' debt and might get them spending again. Unions will be aggrieved that Qantas wants to put off 1000 staff to restructure towards Asia and at OneSteel's and Bluescope announced job cuts, and they know more can be expected in retail if things don't change. So, more money in workers' pockets will resurrect economic activity, they claim. And they're partly correct.

Meanwhile, marking the 20th anniversary of the Superannuation Guarantee Levy, Paul Keating notes that unit labor costs decreased every year the levy rose, from 4 per cent in 1991 to 9 per cent in 2002, despite employers claiming it would prove to be a cost to them. He'd like it increased to 15 per cent, but will settle for 12 per cent immediately.

Mr Keating apparently hasn't noticed average weekly wages have trended down ever since 1972. (Some apparent real increases since 1998 were at least partly the result of redefining Australian CPI following the US Boskin Commission's recommendations in 1996, wherein it opined the CPI had been overstated, and used more stable "rental equivalents" in preference to house prices.)


As Paul Keating dusts down his Louis XVI clocks, one wonders whether he has workers' interests at heart, or just his own place in Australia's economic history. Isn't workers' most immediate need in hard times to be able to access their own earnings? Isn't compulsory superannuation based upon the incredibly patronising premise that governments and super funds know better than you how to manage your retirement and financial affairs?

For that matter, now that the union movement itself has an integral stake in industry superannuation funds, wherein lies its true allegiance? Does it lie in making favourites out of particular shares, or certain REITs, or in looking after the here and now of its members, as once it did?

On the other hand, business is becoming choleric about the possibility of further wage increases. Salary rises have recently exceeded increases in productivity, they rightly claim, despite the longer trend in real average weekly wages having declined from the outset of the 1970s.

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About the Author

Bryan Kavanagh is a real estate valuer and associate of the Land Values Research Group.

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