Financial Review, 4 November 2022

Aged care workers have won a 15 per cent pay rise – with potentially more on the way – that will add billions of dollars a year to the federal budget deficit and contribute to bubbling wage pressure.

The Fair Work Commission delivered the long-awaited decision late on Friday after finding that an interim increase for up to 180,000 direct carers’ minimum wages, to be phased in over a yet-to-be-determined period, was “plainly justified by work value reasons”.

The increase comes as the Reserve Bank of Australia toughened its language over the risks of a prices-wage spiral on Friday, after a majority of businesses expected wages to rise by up to 5 per cent in the coming months. One in 10 expect growth above that figure, according to feedback from the Reserve Bank’s business liaison program.

Qantas chairman Richard Goyder has called on the Labor government to delay its overhaul of industrial relations laws, arguing that plans for multi-employer bargaining provisions could hurt productivity.

“We’re concerned that lowering the bar for compulsory arbitration and enforcing multi-employer bargaining would effectively lead to centralised wage setting,” Mr Goyder told Qantas’ annual general meeting in Sydney on Friday.

Last month’s budget forecast that federal spending on aged care services would rise by 50 per cent to $34.7 billion between the previous financial year and 2025-26, reflecting growth in improved residential aged care.

Treasury estimates, provided by the federal government to the FWC, suggest a 25 per cent pay increase would attract about 5 to 10 per cent more people to the 365,000-person aged care workforce.

Unions are also planning to target other low-paid industries, including childcare and the renewables sector, through the government’s proposed multi-employer bargaining laws.

Aged care wages, which sit at about $22 an hour, could rise further as the commission has left the door open to more pay increases for direct carers and is still to decide on union claims for a 25 per cent increase for administrative and support employees.

Workplace Relations Minister Tony Burke, who before the election backed whatever pay rises the FWC decided, said “aged care work is hard work – but it’s undervalued work”⁣.

“This result is the first step in changing that,”⁣ he said. “We fought for this pay rise because our government is committed to getting wages moving again – particularly in low-paid female-dominated industries like this one.”⁣

 The Health Services Union, which sought a 25 per cent pay rise for all carers to up to $28 an hour, welcomed the decision but said a larger and broader increase was needed to stem the staff shortage “crisis”⁣ in the sector.

“This is a reasonable start but we need the commission to go further and permanently end the poverty wage settings that dominate aged care,”⁣ HSU president Gerard Hayes said.

‘This will not fix the crisis’

“Fifteen per cent is a down payment but nobody should be mistaken. This will not fix the crisis. We still have massive unfinished business in aged care”

The Albanese government previously described the coming FWC ruling in last month’s budget as an “unquantified fiscal risk”⁣.

Unions brought the work value case to the commission after the aged care royal commission found staff were poorly paid and in short supply.

 An FWC full bench, led by president Justice Iain Ross, accepted that as “a general proposition, work in feminised industries, including care work, has been historically undervalued and that the reason for that undervaluation is likely to be gender based”⁣.

However, it mainly considered that the duties of carers, including registered nurses, had changed significantly in the past two decades as had the needs of those they cared for, in terms of clinical complexity, frailty and mental health.

The commission will next decide on the timing of the increase and has invited submissions from the government by November 22. It will then make a further decision to finalise pay rises for specific classifications and determine if further wage rises are justified on work value grounds.

Aged care providers had largely backed a pay rise provided it was government-funded.

Previous estimates of the unions’ full 25 per cent wage claim had costed it as an extra $3 billion a year while some had it as much as $16 to $18 billion over four years.

On Friday, the Reserve Bank formally upgraded its forecast for inflation to peak at 8 per cent this year and remain above the 2-3 per cent target band until at least 2025.

 More worryingly, the forecast for peak underlying inflation – the bank’s preferred measure – was revised up to 6.5 per cent and also tipped to remain above 3 per cent until 2025, suggesting a broadening of price pressures.

“A more medium-term risk to the inflation outlook relates to the persistence of domestic inflationary pressures and the possibility that price- and wage-setting behaviour could shift,”⁣ the RBA said in its latest economic update.

Non-discretionary inflation hits record

“Inflation is now spreading to more persistent non-discretionary items. This follows an apparent increase in firms’ willingness to pass on upstream cost pressures to consumers.”⁣

Non-discretionary inflation – the annual movement in the price of goods and services people cannot do without – hit a record high of 8.4 per cent in the September quarter as food and energy bills were rocked by spiking prices.

“The longer these domestic pressures persist and inflation stays high, the more this could lead workers to make larger wage claims, especially in a tight labour market,”⁣ the RBA said.

UBS chief economist George Tharenou said the RBA appeared increasingly focused on wages and on striking a more hawkish note than in the past.

“This is especially an upside risk to our relatively dovish view on wages and inflation, given the proposed policy changes by the government to the labour market, and uncertainty over the minimum wage next year,”⁣ Mr Tharenou said.

About two-thirds of companies over the past three months have told the RBA they expected wages to rise by between 3 per cent and 5 per cent in the coming months, and an additional 10 per cent expect growth above that.

About a quarter of the companies reported wages growth north of 5 per cent in the past year, with the strongest rise in construction and business services.

Many of those firms now report an expected pullback ahead.

“Around half still expect wages growth at their firm to be above its historical average over the next year.”⁣

 
The average annualised wage rises for newly approved enterprise bargaining agreements are still picking up gradually to about 2.9 per cent, however, and households are not yet convinced their wages will climb sharply.

With headline CPI expected to still be above 6 per cent when the Fair Work Commission determines the minimum wage rise next year, the Albanese government will be under pressure to again push for wages to match.

Overhaul of workplace relations laws

The RBA’s forecasts for wages also undermine the government’s push for an immediate overhaul of workplace relations laws to “get wages moving” – although it does not say to what point. The RBA expects the wage price index to be 3.9 per cent over 2023 and 2024, well above the long-run average.

Despite growth being above the 3.5 per cent rate considered consistent with inflation at the middle of the target inflation band, the RBA said the new forecasts were generally consistent with the inflation target.

Firms in the RBA’s business liaison program reported that year-ended growth in base wages had increased to a little above 3.5 per cent, which would be the fastest growth rate in about a decade.

“The increase over recent months reflects firms’ responses to strong labour demand, the award wage increases announced by the Fair Work Commission and higher inflation outcomes,”⁣ the RBA said.

But even with large rises on the cards, real wages are set to go backwards by about 5 per cent this year and by just under 1 per cent next year.

“Those seeking assistance are primarily households that rent, although there has been a pick-up in recent home buyers contacting community service providers,” it said.

RBA governor Philip Lowe issued a bleak warning on the perils of high inflation this week after the bank lifted the official interest rate by a quarter of a percentage point to 2.85 per cent and said more rises were coming.

Defending the RBA’s latest rate rise, Dr Lowe said high inflation was a scourge that needed to be dealt with swiftly to stop people from becoming accustomed to high price increases, making a bad situation worse.

“If this were to happen, the evil of inflation would be with us for longer and the eventual increase in interest rates needed to bring it down would be greater,” he said in a speech in Hobart on Tuesday evening.

However, on Friday, the RBA reported that the economy appeared to be at a “turning point”, with a range of key economic indicators including retail demand, new home sales and hiring intentions easing back from highs.

In a sign that inflation might finally be peaking, feedback from the bank’s business liaison program suggested that although most companies intended to increase prices further, these were expected to be smaller than in recent times.

https://www.afr.com/policy/economy/aged-care-workers-get-15pc-pay-rise-20221104-p5bvoz