The economy

Wage growth stalled

On November 17 the ABS released the wage price index for the September quarter, revealing that wage growth has recovered from its fall to zero during the pandemic. The graphs on the ABS website show an impressive recovery, with hourly rates of pay in the September quarter up by 0.9 percent.

That’s part of the story, but it makes more sense if those figures are brought to real, inflation-adjusted, terms, shown in the graph below. That tells a different story.

Over the last five years there has been very little wage growth, and once we iron out the bumps in the figures we find that since 2016 the average real rate of annual wage growth has been only 0.20 percent – 0.15 percent in the private sector, 0.33 percent in the public sector. At 0.20 percent a year it would take almost 50 years for wages to rise by 10 percent.

There are two reasons why wage growth is so slow. One is that a disproportionate share of economic growth has gone into profits: the ratio of profits to wages has been on an upward trend for many years. The other, and probably more significant factor, is low productivity. Either way, such low wage growth points to a poorly-managed economy over an extended period.


Saul Eslake has put his opening statement to the House of Representatives inquiry into housing affordability and supply on his website. (Be patient – his web page is slow to load.) In times past, government policies were directed to increasing housing supply, but over a long period government policy has shifted towards boosting demand, through measures such as grants for first-home buyers. As a consequence, in a supply-constrained market, prices have risen and there has been a transfer of wealth to those who own homes, at the expense of those seeking to buy homes.

Eslake stresses, however, that increasing supply in itself won’t solve the affordability problem unless it is accompanied by the removal of tax incentives that inflate demand – negative gearing and capital gains tax breaks in particular. He notes that conservative governments in the UK and the US have abolished those countries’ negative gearing measures: he hints that the Labor Party can surely muster up the courage to have another go at these unfair incentives.

Writing on the ABC website Michael Janda describes the economic arguments that have taken place at the same inquiry: Housing affordability won't be greatly improved just by less regulation, more supply, RBA argues.

The Reserve Bank representative at the hearings argued that because of strong building activity and low immigration, supply does not, or should not, present a problem. The Reserve Bank also mentioned tax breaks, acknowledging that they may have some influence on demand, but in all it downplayed their importance. Mainly it blamed itself (without apology) for having set low interest rates.

One Liberal MP took the side of the property developers, arguing that state governments should release more land to relax zoning and other regulations, questioning why lower interest rates should increase demand and push prices up. His argument was that apart from these unnecessary constraints, housing is traded in a normal competitive market.

But housing isn’t a normal competitive market, because prices are influenced mainly by the affordability of re-payments, which in turn are responsive to interest rates, rather than the normal rules of supply and demand.

One Labor member of parliament timidly picked up on the theme that tax concessions may have helped drive up prices, but Janda’s report suggests that the Labor committee members didn’t take this point any further.

A sluggish broadband

Remember this sound when you made a dial-up internet connection?

Some Australians are still hearing it. Labor has promised to expand access to high-speed broadband to an additional 1.5 million premises, left behind when the Abbott Government replaced the Gillard Government’s fibre-to-the-premises scheme with fibre-to-the-node. A substantial part of Labor’s catch-up would be directed to non-metropolitan regions.

But how fast is our broadband in comparison with other countries? There are many comparison websites, some of which have extraordinary claims, but one reasonably reliable site is the OECD’s, which gives comparative data on its broadband portal. From there you can download data in Excel spreadsheets. (Go to “Speeds” on the portal and download the two spreadsheets.)

Our download speeds are indeed low in comparison with other “developed” countries. Out of the 36 OECD countries, Australia ranks at position 32. Out of those OECD countries only Colombia, Mexico, Greece and Turkey have lower speeds. Most “developed” countries have speeds in the range 100-200 Mbps, while our average is around 60 Mbps.

In most countries customers have connections faster than 100 Mbps, but in two OECD countries, the UK and Australia, most customers’ connections are in the 25-100 Mbps range. The site Speedtest, one of the three sources used by the OECD, reveals that we rank reasonably well for mobile broadband (#10 median speed out of 141 countries), but poorly (#54 out of 181 countries) for fixed broadband: Paraguay, the UK, Uruguay and Vietnam all rank ahead of us.

Corporate welfare

For a government that supposedly believes in free markets the Morrison government has ventured a long way into crony capitalism. The Irish owner of the telco Digicel, provider of mobile services in Fiji, Samoa, Vanuatu, Tonga and Nauru, is selling his company. Fearful that it might be bought by a Chinese company, the Morrison government is funding Telstra Australia to buy Digicel’s Pacific operations.

Writing in Pearls and Irritations Kim Wingerei explains the detail of the operation: $1.6b handout to Telstra’s Andy Penn to head off the Chinese. Roughly half of that handout is non-voting equity. That is, the Commonwealth bears the cost of public equity but without the benefit of control or responsibility. Telstra’s executives are ecstatic with joy.

We can now feel safe that China isn’t going to purloin Tonga’s nuclear secrets, or eavesdrop on asylum-seekers on Nauru to hear what they are saying about Australian governments, but we may never know why the Morrison government has channelled this finance through a private company, and on terms so advantageous to its shareholders, rather than helping Pacific countries to take ownership themselves.

Enduring poverty

Around every five years Jesuit Social Services produces a report “Dropping off the Edge”, examining conditions in disadvantaged communities. It’s a major project, involving rigorous quantitative collection and analysis of data, backed up with qualitative research. Income is just one of 37 indicators used to build up a measure of disadvantage. Others include long-term unemployment, contact with the criminal justice system, the state of the local natural environment, health risks, health status, and education levels. Unsurprisingly these indicators are all closely correlated. They also find that disadvantage is regionally concentrated, both within our cities and in the broader landscape. Our geography of disadvantage is coming to look more like that of the USA or France than the egalitarian suburban Australia of our mythology.

The 2021 Dropping off the Edge Report is rich in geographical findings. Our cities are regionally divided: the maps of Sydney, Melbourne, Brisbane and Adelaide, rather than showing pockets of disadvantage, show whole large regions of disadvantage, reminiscent of Berlin’s segregation by the Wall. Even Canberra – the city that in the 1960s and 1970s was supposed to provide a model of social mixing – is sharply geographically divided. (Yet politicians and journalists use the term “regional” as if it applies only to non-urban places, while ignoring distinct regions in our big cities.)

The other general geographic finding is that disadvantage tends to be concentrated in regions remote from state capitals and distant from the Pacific coast – pretty well anywhere that would be described as “outback”, or even “the bush” in many instances.

One trouble with the regional pattern we have developed is that it minimises opportunities for social mixing. If the well-off never see people who are poorer, they are apt to be ignorant of the extent of poverty.

Where are all the electric cars?

Peter Martin has a Conversation piece about how, with the right policy settings, electric cars could become much more affordable in Australia. The embarrassingly easy, tax-free way for Australia to cut the cost of electric cars.

It wouldn't get a subsidy if it were electric

One way, mentioned by many economists and engineers, is to set high emission standards for all vehicles. That would bring down the price for electric vehicles relative to the price of gasoline and diesel-powered vehicles, and in stimulating the market for electric cars it would allow the market to develop the volumes and competitive conditions that would bring down their absolute price.

The other mechanism, less mentioned, is that emission standards can be applied across a manufacturer’s whole range of vehicles, as is done in some countries. This recognises the reality that most companies offer many models, varying from gasoline-hungry light trucks and heavy 4WDs, through to compacts. It also recognises the fact that companies have a great deal of flexibility in pricing. Because the production and distribution of vehicles involves many costs that cannot be traced to particular products, these costs can be allocated to any product in the range depending on competitive conditions.


In Australia the market for large vehicles, such as twin-cab utes, encouraged by generous depreciation allowances, is very competitive. Car companies have an incentive to trim their margins on these vehicles and to allocate them more heavily to other vehicles. But as Martin points out, emission standards applying to a company’s whole range on offer, would give companies a strong incentive to lower the price of electric vehicles and other low GHG-emitting gasoline and diesel vehicles, and to push up the price of vehicles with high fuel consumption.