May 17, 2021 by Dymphna

T-Bomb: Found it! The hole in the budget.

Truth Bomb Tuesday: I did a bit of forensic accounting on the budget. What I found might surprise you.

Ok, the dust is settling on the budget, and there’s a lot that’s been written about it so I won’t cover it all again here.

But there is one thing that jumps out at me, and for my money, it’s the most important numbers in the whole budget document.

I got my forensic accounting hat on for this one, so let’s get all CSI Canberra on it.

So the relevant table is this one. This is the forecasts for the key economic indicators.

Now a lot of that is well known. GDP is bouncing back. The unemployment rate is heading towards 4.5%

But let’s clear all that out and focus on two things – the Wage Price Index – a measure of how fast wages are growing, and the Consumer Price Index – a measure of the price of stuff in the economy.

Now the way these numbers work is that you can take away the CPI from the WPI, to get real wages growth – that is, how fast are wages growing relative to the price of stuff.

And what do we get?

Well, we get an epic fall in wages in 2020/21, but then after that? -0.25%, nada, nada, 0.25%.

That is, real wages are going nowhere. By the end of FY2024/25, real wages will be lower than they were pre-Covid.

That’s not a fantastic outcome if, you know, you work for a living.

And given the economy is bouncing back in a massive way, and the government is still fire-hosing money all over the place, it’s a particularly disappointing outcome.

Now, it is possible that no one at Treasury has really thought about this, and this is just one of those things that falls out of the numbers when an accountant like me puts them together. That’s possible. But for real wages to be growing, either the CPI needs to come in much lower than expected, or nominal wages need to be booming in a way we haven’t seen in decades.

That is, it’s not likely.

And personally, that’d be my expectation too.

I think a lot of people are starting to enjoy working from home. They’re loving the flexibility it offers them.

But what happens if work from home becomes fully permanent? What happens when your employer realises that if the only time they ever see you is on a Zoom call, there’s probably someone in India, or Serbia, or Mexico who can do Zoom calls just as well as you can?

This is one of the key things that has held wages down in recent years. As the world became more ‘globalised’ many workers were forced to compete with workers overseas.

That either happened at a company level, where manufacturing firms just off-shored if they couldn’t get competitive labour. Or it happened directly, through outsourcing things like call centre and administrative work.

Either way, the more globalisation advanced, the more Aussie workers found themselves competing in a globalised labour pool.

And it’s pretty hard negotiating a pay rise in those conditions.

And now Covid, like it has for many things, has forced a decade’s worth of changes into a single year, and the global labour market has become even more competitive.

So it would surprise me at all if the real wages went nowhere, or even fell, as the economy recovered.

Treasury’s outlook actually looks pretty realistic.

So what’s the take-home message.

Self-reliance. If it’s one thing I’m famous for, it’s preaching a doctrine of financial self-reliance. You’ve got to take your financial future into your own hands.

Nobody is going to do it for you. Not your employer. (Especially not your employer). Nobody.

It’s all on you.

Luckily, if you’re ready to take that step and take on that responsibility, we’ve got the tools you need.

Ask me about giving yourself a pay rise.