Wages will continue to lag inflation until at least 2023-24.
So strong has inflation been over recent years,and so slow wages growth,that real wages won’t get back to pre-pandemic levels until at least 2026.
The treasurer said it was an enormous challenge.
“The economic picture I have set out today represents a convergence of challenges,the kind of which comes around once-in-a-generation,” he said.
“But this once-in-a-generation challenge also represents a once-in-a-generation opportunity for our country. The opportunity to build a better future.”
Chalmers also revealed the federal budget– forecast to show a deficit of $79.8 billion last financial year – would show a “dramatically better-than-expected” result.
He said this would be driven by temporary factors such as supply chain disruptions and capacity constraints,which had delayed some government spending. Low unemployment and much higher than forecast prices for key commodities have also fed more money into Canberra’s coffers.
Chalmers warned this would not last as there were short,medium and long-term pressures building on the budget.
He said the government would have to make hard decisions to repair the budget.
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“Right now,every household has to make tough decisions about what they can and cannot afford – and it shouldn’t be any different for their government,” he said.
Overnight,the United States’ central bank lifted interest rates there by another 0.75 percentage points amid concerns the world’s largest economy is already in recession.
Chalmers pushed back against suggestions the Australian economy would follow America into a downturn.
“It’s not Treasury’s expectation that we will go into recession in Australia. We have grave fears for the global economy of course,as others do too,but here in Australia our economy is expected to continue to grow but so are our economic challenges in the near term,” he said.
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Shadow treasurer Angus Taylor said the treasurer delivered a speech “heavy on excuses and heavy on politics” instead of providing a plan on how the government would help people with cost of living challenges.
“The treasurer held out three tests for himself:what happens to power prices,what happens with apprentices,and what happens with real wages. We will hold him to account for these,” he said.
KPMG senior economist Sarah Hunter said the figures confirmed Treasury expected real wages to fall for another two years.
She said there was little the government could do to turn around the situation.
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“With global factors driving a significant proportion of current inflation,the Treasurer made it clear that there isn’t much the government or Reserve Bank can do to counteract these trends,” she said.
“Furthermore,there was also an acknowledgement of the role domestic demand is playing,and a need for fiscal policy to not work against the monetary settings by trying to stimulate the economy further.”
CreditorWatch chief economist Anneke Thompson said business conditions were taking a turn for the worse,and the likelihood of insolvencies into next year had significantly risen.
“The industries that are most at risk due to these deteriorating economic conditions is the food and beverage and arts and entertainment sectors,” she said.
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