Grattan on Friday: Labor caught in pincer movement of fighting inflation and delivering to its constituency

During the election campaign Anthony Albanese repeated, endlessly, that everything was going up except people’s wages.

More than a year later, things are still going up, now including some people’s wages.

The latter increase is all good, surely? Yes, up to a point. There’s dispute about whether the (still modest and limited) wage rises recently delivered by the Fair Work Commission will lead to other things going up further.

Jim Chalmers was blooded as a staffer to the then treasurer, Wayne Swan, during the global financial crisis. Now Treasurer Chalmers is in the driver’s seat as another Labor government copes with an economic crisis – very different from the GFC, but similar in that it has arisen from circumstances not of the government’s making.

Chalmers insists the Fair Work Commission’s 8.6% rise in the minimum wage and 5.75% increase in award wages won’t add to Australia’s inflation problem. The minimum wage rise (which is above current inflation) affects only a few people; the increase in awards is below the inflation level. In total, the increases affect up to a quarter of wage earners.

Regardless of the government’s confidence, the medium-term effect of the wages decision remains one of those “time will tell” issues.

Reserve Bank Governor Philip Lowe this week made the obvious point. “How much it adds to the inflation outcomes really depends upon whether it spreads across other parts of the labour market.”

It’s clear current inflation hasn’t been driven by wages. Their future course will rest on what expectations are generated and whether unions muscle up to extract substantial pay deals.

The trajectory of wages is just one of the unknowns in the complex situation facing the economy, and thus the government, over the next year.

For many Australians, however, the picture is starkly simple. Their mortgage payments have been hit again, with the Reserve Bank this week increasing the cash rate by a quarter of a percentage point. The bank has indicated there could be another hit to come. Meanwhile the necessities of life are at sky-high prices.

Many critics are yet again railing against Lowe. One-time Labor minister Stephen Conroy, who probably should know better, declared: “This bloke has lost the plot. He’s given the middle finger on the way out the door to the Australian public as he gets shuffled out the door.”

Lowe’s home truths regularly provoke fury. “If people can cut back on spending or, in some cases, find additional hours of work, that would put them back into a positive cash-flow position,” he said this week.

True, but it’s not what cash-strapped people want to hear (or necessarily can do), especially when the governor makes it clear the bank will, if necessary, inflict more pain. Anyway, higher interest rates will mean some people losing jobs.

While the recent review of the Reserve Bank suggested it should explain itself more, arguably Lowe would have done better to say less over recent years (certainly that’s true of his prediction rates would not move until 2024). Chalmers may list communication skills as one criterion when he chooses Lowe’s successor.

Chalmers himself is strong on messaging, this week carefully keeping his distance from the latest rate rise.

As Wednesday’s national accounts showed the economy slowing and productivity going backwards, the government is caught in a pincer movement.

It must meet the challenge of managing the economy, which means at this point, as Chalmers says, putting the fight against inflation to the fore. Chalmers is always quick to quote those (including Lowe) who say the budget wasn’t inflationary.

Being good economic managers is objectively necessary, but politically too. It’s a mantle Labor needs to wear for the government’s long-term survival.

On the other hand, Labor’s base and its election pitch push in another direction.

This is a LABOR government. Its core constituents, including and especially those on low wages, are hurting badly, while its core union base is feeling its oats.

Labor’s mantra, before the election and since, has been to get wages moving. The unions demanded, and were given, changes to the industrial relations system to improve their bargaining power in the pursuit of wage rises.

Last year’s jobs summit brought together business and unions (as well as the community sector). But, by the end of it, there was no doubt the unions had the upper hand, which was always going to be the case.

This week a coalition of business groups launched a campaign against the government’s planned “Same Job, Same Pay” legislation, designed especially to stop labour hire companies undercutting wages.

It hasn’t taken long for the traditional scratchy relationship between Labor and business to emerge, although in a relatively mild form – nothing like, for example, the fight between the Rudd government and the miners over the resource super profits tax, which is still fresh in Chalmers’ memory.

What happens to the economy in the period ahead is partially out of the government’s hands, dependent on international factors.

Having said that, a lot will rest with Chalmers and his colleagues.

For instance, if wage pressures do become a worry, will the government require a more creative approach to the problem, including perhaps more innovative submissions to the Fair Work Commission or a tax trade-off with the union movement?

The government urgently needs to find ways to get productivity moving, because that’s the route to sustainable real wage rises. No one, however, underestimates how difficult it is to restart this motor.

To an extent, Chalmers finds himself in a relatively isolated position within the government.

Like all treasurers, he has to be the one who (often) says no to spending ministers. He also should be, to some degree, a counter weight to the colleague who in effect speaks for the unions, Employment Minister Tony Burke.

Inevitably, a treasurer must carry the economic debate for the government, although that burden is always shared between treasurer and prime minister.

In this government, for various reasons, including his many international engagements and his preoccupation with the Voice referendum, Albanese has not been doing as much of the economic heavy lifting as some of his predecessors. As people become increasingly agitated about their circumstances, that might have to change.