Wayne Swan has been working hard over the last few days to blame inflation on the previous government. But will the public believe him?
In the Newspoll series of questions on which party is better to handle various issues, inflation has been one of the Coalition’s strengths. Of the 43 times Newspoll has asked about inflation since 1990, the Coalition has been rated as better 41 times, with an average lead of a huge 17.7%. One of the exceptions was the Downer leadership meltdown in late 1994 which affected all Liberal issue ratings, the other was a smaller wide dip in July 1992 (can anyone remember what was happening that month?).
If both Labor victories in Newspoll were because of self-inflicted Coalition political wounds, it means that Labor could not win the inflation issue on its merits despite having inflation below 2% for a couple of years in the early 1990s.
Though the Liberal winning margin seems sensitive to inflation performance – for example, it dipped when inflation spiked after the GST was introduced – this seems to be an issue that the Liberals ‘own’. They still had a big lead despite the GST effect.
If so, this seems contrary to the general theory of issue ownership, which suggests that voters use party stereotypes most when it is difficult to assess actual performance. For the general public, there is a well-publicised single indicator of inflation in the CPI, which would seem to make it relatively easy to make simple coincidence=cause assessments.
Time will tell whether Labor can take inflation from the Liberal list of owned issues. Labor won’t be the only people hoping that inflation will be seen as a Liberal legacy. The RBA mandarins in Martin Place, who really are to blame for our inflation problem, will be just as eager for somebody else to pay the political price.
Andrew Norton 
It’s a bit of a stretch to blame the RBA for our inflation problem. The real source of it is the Howard government’s pro-cyclical fiscal policy and its fritting away of billions of commodity boom-generated surpluses on middle class welfare. Had that money been invested in generating spare capacity, we might not be in this position.
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This morning on Jon Faine, Lindsay Tanner was saying that inflation has only appeared as a problem in the last six months. That is a bit of an admission that’ll make it had to blame the Howard government for frittering away the ‘boom’ and all that. He also said that the tax cuts were really just giving back bracket creep. Faine also quizzed him on the size of the surplus being bipartisan policy, and Tanner agreed.
As Stephen Kirschner indicates the RBA have full responsibility in this area – they are getting off lightly. The ALP are trying so hard to blame the Libs that they might let the real culprits off the hook.
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Stephen argues here that it’s pretty hard to see the empirical links beween fiscal policy and inflation outcomes. In any case, the Coalition was already running huge surpluses, which is what the fiscal policy argument suggests they should do. It remains to be seen whether the spending cuts promises from Labor amount to much. From what I have seen so far, while I applaud them in terms of general restraint, I don’t think they will have much impact on overall demand. They have made the big spending items – family handouts (except for some minor means testing on FTB B), aged pension, education and health immune from serious scrutiny, but if you want to reduce government spending to any significant extent you have to tackle these things.
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With commodity prices like oil, metals, and foodstuffs all at or near record highs, the blame for this latest round of inflation seems pretty obvious to me. It is a pity if the public is so economically illiterate as to fall for petty political point-scoring on this. (RBA mistakes notwithstanding.)
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In theory the RBA measures of inflation should smooth out volitile price changes – I don’t know that it does (or doesn’t).
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Out of interest, why is it the case that foreign currency loans are very rare in Australia? At least as when you are an expat, it seems pretty easy to take these out (if I hadn’t deleted my HK account, I could have got a US currency one, for example, even though I don’t live in HK anymore). If these became wide-spread, one can imagine that the RBA would become far less relevant. On this note, I wonder to what extent the inflation due to increased money supply is from hot money coming in from overseas? Are the big companies not doing this already?
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I think Stephen K is right that one body has rsponsibility over inflation and that is the RBA. Inflation is just something that happens when overall demand exceeds overall supply. Even assuming fiscal policy does materially influence this equation, the RBA – knowing this – could have increased rates by more earlier to head-off inflation. And as for the ‘investment’ and ‘skills shortage’ argument, why is this the government’s job? Why can’t investment be left to the private sector to undertake when it is profitable to do so? This may lead to booms and price increases in particular areas, but so long as the RBA is doing its job, generalised price increases (ie inflation) will be controlled. But I take Andrew’s point that the Labor Government will cop some blame. They will probably also cop some blame for higher interest rates even though they are clearly the work of the RBA. If the Coalition is doing its job, they should be able to pin this on labour market re-regulation, which is about to commence.
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Conrad, I suspect our history of currency volatility has turned people off foreign currency loans – eg. I think quite a few farmers got burnt in the ’80s from Yen-denominated loans. But it’s the carry trade and it goes on, so you could probably get one if you spoke to the right bank.
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Rajat, I’m also curious about this notion that it is up to government to create capacity (not ‘spare’ capacity, I would hope, Mr Denmore). The argument seems to hold up in areas where the government has taken control (some ports, roads, rail – in other words, selected public infrastructure) but not in others, like the physical means of production (factories, farms, etc.). Has anyone done any work that measures infrastructural capacity constraints and their impact on inflation versus the impact of an actual lack of productive capacity (for whatever reason – lack of private investment, drought, etc.)? I just want to know how valid this ‘Howard didn’t spend enough on infrastructure so now we have inflation’ argument really is.
BBB
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Tony Harris has a good piece in the Fin Review today – he is hardly a friend of the former government. Regrettably, no link.
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Rajat, “Why can’t investment be left to the private sector to undertake when it is profitable to do so?”
Fair enough but surely government policies, especially taxation can have some effect on private business decisions here.
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And Rory Robertson of Macquarie Bank, in response to the Harris piece, argues there is no dishonesty in Treasury forecasts – just the usual uncertainties in making economic forecasts – particularly in an economy growing at full capacity and with a huge wealth injection from China.
The RBA has been steadily lifting rates since mid-2002 – its most protracted tightening cycle. For much of that time, commentators have tended more to lambast it for jumping at inflation shadows than for being behind the curve. As recently as a few weeks ago, Glenn Stevens was accused of being a Pollyanna for issuing an upbeat speech on the local economic outlook in the face of US recession talk. So to say the bank has dropped the ball on inflation is a big call.
As to fiscal policy, it is a fair point to ask how the former government could justify injection tens of billions of dollars of tax cuts into a fully stretched economy already receiving a significant wealth injection from the China-led commodities boom and at a time when productivity growth was slowing.
The words petrol and fire come to mind.
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I haven’t seen Rory Robertson’s piece – can you send a link please.
Given the Treasury’s record on forecasting budget surpluses* I’m inclined to agree with Tony Harris.
* see John Stone, 2007, ‘Mr Costello’s repeated budget failure’, National Observer, Winter, 73: 13 – 24.
Alex Robson, ‘Peanuts via Costello makes us all proper Charlies’, Canberra Times, 5 September 2007, pg. 11.
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“how the former government could justify injecting tens of billions of dollars of tax cuts ” [emphasis added]
But they weren’t ‘injecting’ billions of dollars in the way that metaphor is usually meant, which is pump-priming economies with borrowed money. Instead, they were confiscating less of the wealth already being generated, while as I noted above still maintaining a contractionary stance – very large budget surpluses.
We could make the same argument about the government that you made about the RBA – they were taking significant steps to slow the economy down and to say they ‘dropped the ball’ is a big call, especially as it is widely accepted that monetary policy is more effective than fiscal policy in controlling inflation. Even the fiscal policy advocates usually only argue that it is a supplement to monetary policy.
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Sinclair, I too am bemused by the RBA’s underlying inflation measures. Sure, it removes volatile items like fruit, vegetables and fuel but then goes on to make various adjustments to arrive at the trimmed mean and weighted median (the underlying rate is the average of those two).
I can understand the need to remove volatile and seasonal influences (bananas were a classic example of distortion) but often these volatile persist (as they have for at least six months) and then flow on to other prices such as alcohol, utility prices, fares, etc. which are part of the underlying rate. So what goes out and what stays in is rather arbitrary.
The ABS has put out a pretty unhelpful information paper:
Click to access 6401055002_2007.pdf
On the blame game, I accept there were many external forces at work which were nobody’s fault but I am with Mr. Denmore in saying that the Howard Government should have done more to contain demand pressures at the height of the boom 2005-2007. Costello ran a neutral fiscal regime and spent nearly all of the soaring commodity led revenue, thus helping to create an environment conducive to the passing on of cost increases, high profit margins and some wage excesses in the West and Queensland. The capacity issue is also relevant – the neglect of training, relocation assistance and infrastructure were all slow burners.
I am a great admirer of the RBA’s monetary performance since the early 1990’s. I have doubts however about their decision today to raise interest rates mainly because we are at the turning point of the demand cycle and the timing is wrong. I also worry about their underlying inflation measure and the effectiveness of monetary policy in dealing with cost-push factors – direct and indirect.
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BBB, even in most infrastructure areas, it is often the case that the businesses are privately-owned or state governments have the main responsibility. It seems that Howard is to blame for inflation because we don’t have broadband in Longreach or a university place for every frustrated checkout chick.
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Howard ran a loose fiscal policy. He got a lot of revenue from the booming economy, and spent most of it trying to get re-elected, leaving only small surpluses of a per cent or so of GDP. As a policy, it was irresponsible, wasteful and ultimately futile.
Both the Howard government and the RBA are to blame for inflation: Howard, for running a loose fiscal policy and doing nothing about supply bottlenecks; and the RBA, which should have known that what Howard was doing would lead to inflation if it didn’t act decisively. It didn’t act decisively enough.
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“They were confiscating less of the wealth already being generated, while…still maintaining a contractionary stance – very large budget surpluses.”
Clearly not large enough. If the budget’s automatic stabilisers had been allowed to work as they should under Howard, the surpluses would have significantly bigger than 1 per cent of GDP. This is why we are now seeing the RBA state openly that it will have to engineer a significant slowing in demand.
Yes, monetary policy is more effective than fiscal policy in controlling inflation, but its job is made much easier if the other arm of macro-economic policy is not pushing in the opposite direction. That is my point.
We can argue ideologically about whether governments should have a role in boosting supply through investment in infrastructure and skills development (they should). But assuming supply generation most all come form the private sector (which it hasn’t), then the RBA has little choice but to hit the economy over the head with a rather large hammer.
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The surpluses for the last few years have been 1.5%-1.6% of GDP, very big by historical standards. Apart from a small deficit in 2001-02, policy has been contractionary for a decade. Australia has one of the very few governments in the world that consistently spends less than it taxes.
And speaking personally, I’m still way ahead in all this – the tax cuts easily cover the cost of mortgage interest rate increases. Most other people would also be much better off for the tax cuts: only a minority have mortgages, and many of those who do like me would come out ahead despite interest rate increases.
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Sorry Andrew, but economists assess the fiscal effect by looking at CHANGES in revenue and spending (not levels) and on that measure fiscal policy was roughly neutral not contractionary. Indeed if one looks at the ‘planned’ budget surpluses, fiscal policy was slightly expansionary. It was neutral if one looks only at the actual (unexpected) outcomes
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Spiros
Would you mind explaining how fiscal policy works to raise or lower inflation. Friedman, a Nobel laureate always said that inflation is first and foremost a monetary problem. Was he wrong, which means Wayne Swan is correct? Furthermore does that mean Wayne Swan could actually be in contention for the next economics prize seeing he’s found a nexus between inflation and fiscal policy? Thoughts please.
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Fred – That’s true from any given starting point if trying to stall or jump start an economy. But if people think that fiscal policy is effective against inflation, extracting 1.6% of GDP from the economy must be contractionary compared with the neutral position of a balanced budget, or the pre-late 1990s normal position of Australian budgets, ie deficits. The Howard government was a big spending government, but it was an even bigger taxing government.
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Fred:
One issue:
I really can’t see how fsical policy can be expansionsry if it is in surplus. If the governemnt is taking more from our pockets than it is spending it can’t by definition be expansionary, rather it is the reverse, it is contractionary.
There is only one way an economy having a fiscal surplus can have expansionary policy and that must come from the central bank’s monetary policy.
Even your argument leads to my conclusion. What you are suggesting is that fiscal policy ought to be used to sweep out surplus/ inflationary money supply from the economic system. The question then is where did this money originate and what is the best way of stopping this inflationary impluse.
The quick answer is to look no further than martin place.
Trying to use fiscal policy to dent inflation is the same stuff we used in the 70’s . it doesn’t work and will lead us into trouble.
My real concern is there seems no one in the government with an inkiling or understanding of this. However i think Stevens does, but may be too hardarsed and send us over the edge.
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Fred
Think of it like this.
Let’s say,
1.Government fiscal policy doesn’t change level of taxes rates etc..
2. Central bank eases monetary policy by keeping rates too low at a targeted rate
3. Economics activity begins to hasten
What do you think happens to government receipts? They go up, right.
So if you assume the same level of nominal spending a surplus is created through the inflationary actions of the central bank.
The budget surplus is but a symptom of the infaltionary excesses in the economy. Granted that isn’t the government’s fault with an independent central bank. However, thinking you can control the inflation level through fiscal policy is wishful thinking at best and at worst it could lean towards wrecking an economy.
Fscal policy can never control inflation. Only monetary policy can do that.
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JC, if the government gives you a tax cut, your employer puts money in your bank account every pay day. More money in people’s bank accounts adds to the money supply, dollar for dollar. This is because the money supply is defined to be notes and coins and the total amount in bank accounts. People then spend the money in their bank accounts and if this spending runs ahead of the economy’s capacity to produce things, inflation is the result.
You can think of the problem as being caused by the addition to the money supply. Or you can think of it as being caused by the tax cut. It doesn’t really matter.
Of course the RBA could have observed that the government’s fiscal policy was creating this problem, or at least contributing to it, and put up interest rates higher and sooner to dampen spending, and in that sense Martin Place is to blame.
Fiscal policy can be expansionary even if the budget is in surplus. If the expansionary fiscal policy causes the economy to roar along and this leads to big tax revenues, then the budget may end up in surplus. To test whether fiscal policy is expansionary or not, you have to take away the effect of the economy on the budget, so that what is left is the effect of the budget on the economy.
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That should read, “if the government gives you a tax cut, your employer puts more money in your bank account”.
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Not out of the goodness of his heart – that money has been earned by the sale of goods and services. I can’t see how that would contribute to inflation.
Imports would increase. I don’t understand how spending can run ahead of capacity causing inflation. I can understand how inflation creates the illusion of that happening. Inflation is the cause, not the result.
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UM – I knew what you meant 🙂
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Sinclair, if everything we buy could be imported, then you are right. We can buy an infinite number of plasma TVs without putting up their price, because our demand for them is small potatoes compared to total world supply.
But not everything we spend money is or can be imported. Some things will always be produced here. Like hair cuts. Or bus trips. And even in the plasma TV example, if more demand in the economy leads to wage inflation because there are labour shortages, then the wages of the plasma TV salesmen will go up, and the price of the plasmas will go up (a bit).
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To clarify, of course production can’t literally run ahead of capacity. But once you approach your capacity constraints then it becomes more expensive to produce things. If that happens throughout the economy, you get inflation.
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Once you approach full capacity you’re having to pay more to attract the marginal resource into production (or away from activity x to activity y), I agree. Where we disagree is in calling that inflation. In microeconomics we would say that price increases indicate that a commodity or good or service is more valuable, yet in macro we seem to be saying that prices increases are inflation.
I am convinced by this quote from von Mises
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Sinclair, if it happens in one industry it’s a relative price shift not inflation. If it happens everywhere then there are no relative price shifts and it is pure inflation. If we get both, which is what normally happens, we calculatethe average change in all prices, some up some down, and if that’s a measurable number we call it inflation
However if you want to follow Mises and define inflation to be an increase in the supply of money, that’s your semantic right..
But it’s an odd thing to do. No central bank does it or has ever done it. But you probably don’t approve of them. Let me guess. You believe in the competitive supply of private currencies. Am I right?
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There is a niche market for private currencies – somewhere I’m sure 🙂
I know how central banks define inflation – index tyranny – I indicated above I’m uncomfortable with how its done, and Fred also indicated disquiet. (Fred is hardly a rabid Austrian – is that too much of an understatement?) But you are right, I don’t approve of how central banks define or manage inflation.
Given the value of the A$ my gut impression is that interest rates in Australia are too high, yet the RBA looking at a average of the median price change and trimmed mean price change seems to suggest that interest rates are too low.
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U Milt says
JC, if the government gives you a tax cut, your employer puts money in your bank account every pay day. More money in people’s bank accounts adds to the money supply, dollar for dollar. This is because the money supply is defined to be notes and coins and the total amount in bank accounts. People then spend the money in their bank accounts and if this spending runs ahead of the economy’s capacity to produce things, inflation is the result.
Yes, but we need take a step back and ask who and where those surplus dollars came from in the first place. The only answer can be that it was the central bank that created those dollars.
I have no problem with the money returned to the public, as they own the money. The central bank’s function should then be to sweep out the surplus cash through its open market operations. The money is supply definition is correct, however it doesn’t account for the money the government holds as the surplus which is simply held by the government. It’s already been counted as part of the money supply when it was first created. It’s just sitting there gathering dust. Another way of handling this problem but in a less popular way would be to destroy it. I don’t advocate that as I think Sinc’s idea of returning is a good one. However the central bank would need to drain it obviously through higher rates.
The current system of monetary management is fraught with danger as Sinc points out they are managing against a very suspicious target. They would be much better targeting the quantity of money rather than letting it rip.
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Sinclair, if it happens in one industry it’s a relative price shift not inflation. If it happens everywhere then there are no relative price shifts and it is pure inflation.
Not really. An all pervasive rise in prices could actually happen by the price of energy rising. Energy basically effects every sector of the economy… both goods and services.
However a rise in the cost of energy in of ltself is deflationary to other sectors as it will take more disposable income to purchase something that is relatively inelastic in its response.
So the last thing you may want to do in that environment is misunderstand what it means and raise interest rates which is hardly the response needed. this is why it is very dangerous to set monetary policy on consumer prices
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we are in the midst of the biggest commodity price boom we have ever seen and thus far it has been the longest one.
Automatic stabilisers would have the surplus at roughly 3% of GDP which would take pressure off monetary policy. Afterall monetary policy is the main weapon we use.
If you loosen fiscal policy then ipsofacto you must use monetary policy more.
This has happened.
The ruddster unfortunately is not really fair dinkum about tightening fiscal policy.
Those tax cuts should have been accompanied by spending cuts. Unfortunately we did not have a conservative Government in power to do just that.
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JC, holdings of money (whether notes, coins or bank deposits) held by governments (federal or state) are not counted in the definition of the money supply. So every pay day when your employer takes $1000 out of his bank account, puts $800 in your bank account, and sends $200 to the tax office, that is a reduction in the money supply of $200. So, other things the same, the bigger the surplus, the smaller the money supply.
As was discovered in the 80s, it’s not a good idea to target the money supply to try to control inflation because there is no stable relationship between the money supply and inflation. So in that sense Milton Friedman was wrong, as he admitted late in his life. But he was right in the sense that monetary policy is a better instrument for targeting inflation than fiscal policy. When he first said it, in the 1950s, he was in the minority. Interest rates can be adjusted every month, or even every day, as new information comes to hand. Fiscal policy gets changed just once per year.
So, in summary, fiscal policy affects the economy which affects inflation, but monetary policy is better suited for practical reasons to getting inflation down. But if we’ve got an inflation problem and the government runs a tight fiscal policy, then that will help too.
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U Milt
JC, holdings of money (whether notes, coins or bank deposits) held by governments (federal or state) are not counted in the definition of the money supply.
I disagree.
So every pay day when your employer takes $1000 out of his bank account, puts $800 in your bank account, and sends $200 to the tax office, that is a reduction in the money supply of $200. So, other things the same, the bigger the surplus, the smaller the money supply.
that money, counted as the surplus, is real money held by the RBA as a customer deposit etc. It’s has already been counted and could be spent any time if the government wishes without the need to “print” it or create it.. So that money is part of the money supply. Open market operations are what add or reduce the money supply which is the activity conducted by the RBA to influence interest rates and money growth.
As was discovered in the 80s, it’s not a good idea to target the money supply to try to control inflation because there is no stable relationship between the money supply and inflation.
mainly because they really were confused as to what they were targeting. It is quite amusing that the RBA is supposed to be managing monetary policy but doesn’t know how to count money or what it is. At the moment the RBA is attempting to control interest rates, which it thinks can be used as a proxy to control the money supply/inflation. It can’t. The RBA can only do one of two things but not at the same time. It can either control interest rates and therefore not control the quantity of money or it can control the quantity and not interest rates. Can’t do two things.
So in that sense Milton Friedman was wrong, as he admitted late in his life. But he was right in the sense that monetary policy is a better instrument for targeting inflation than fiscal policy.
Milt was wrong on this primarily because he wasn’t able to define what it was that the central bank was supposed to be looking at. One of the only things he ever got wrong.
Interest rates can be adjusted every month, or even every day, as new information comes to hand. Fiscal policy gets changed just once per year.
So, you’re actually supporting my argument. Interest rates would be allowed to float in my environment and the quantity of money would be controlled. The government cannot use fiscal policy to control inflation unless the government is prepared to destroy the surplus cash that is ever created.
So, in summary, fiscal policy affects the economy which affects inflation, but monetary policy is better suited for practical reasons to getting inflation down. But if we’ve got an inflation problem and the government runs a tight fiscal policy, then that will help too.
Fiscal policy can be used to wreck an economy, but it can’t be used to control inflation. That’s just an old fallacy.
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Homer is actually correct, but he leaves out the other bit.
The surplus ought to simply be looked at as dormant inflation resting in the draw of the governemnt account with the RBA.
We could reduce spending to all allow for the tax cuts. But it avoid the obvious. the surplus by definition would remain the same if spending cuts were used to support the tax cuts.
All things being equal
$10 of receipts
$8 of spending
$2 of surplus
————–
Introduce tax cuts along with spending cuts
$10 of receipts
$6 of spending
$2 of tax cuts
$2 of surplus.
Surplus remains the same under Homers example.
—————
The only way to do it is to lower taxes and then have the RBA drain the excess inflation out of the system.
or
Simpy destroy the money by the government asking the RBA to cancel the deposit.
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JC, the definitions of the various monetary aggregates can be found in the Notes to Tables in the RBA Bulletin (note to Table D.3). It’s only holdings by the private non bank sector that get counted.
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Economists don’t agree on much but they agree that while the main responsibility for inflation rests with the RBA, fiscal policy needs to pull in the same direction as monetary policy.
Alan Woods – surely one of our top journalist economists and no lover of Rudd – has an interesting column today. He acknowledges that fiscal policy can “make the RBA’s task more or less difficult” and that if the Howard Government had piled up bigger budget surpluses “interest rates wouldn’t have risen as much”. He supports the past and proposed tax cuts as a means of redistributing the benefits of the resources boom to all Australians and because of their wider economic benefits. But Wood deplores the fact that “the Howard Government’s spending programs were all too often ill-directed to short term vote buying”. Ross Gittins has been saying similar things in his columns.
That doesn’t make Howard the chief culprit on inflation – far from it. But he didn’t help as much as he should have.
Alan Wood warns that a bigger risk than fiscal policy in the future will be a wage breakout in the future. We all concur with that too.
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U Milt
They don’t use the aggregates to conduct monetary policy. They think they can use the CPI as the marker to target interest rates. targeting CPI is silly and will lead us into trouble.
Alan Wood warns that a bigger risk than fiscal policy in the future will be a wage breakout in the future. We all concur with that too.
Fred.
Rudd ran on a policy of gluing up the labor market again. Fred. The RBA will then do what it has to do, which is raise rates if wages break out as a result of union demands.
Is that the abyss I’m seeing under my feet.
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JC can’t read.
theALP policy for wages is that they can go up with common law contracts or with EBAs.
both are determined by the health of the firm. No glue involved at all.
Unfortunately JC frequently goes back to the 70s when thinking of labour market policy instead of the 90s.
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JC,
you have union paranoia, given that most people don’t belong to a union, and that thanks to shitty training system of Australia lots can get any pay rise they want. Think about that next time you doctor or dentist charges you any amount they feel like.
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Think about that next time you doctor or dentist charges you any amount they feel like.
this is where lefties like you come unstuck, Conrad. Doctors and D don’t charge what “they like”. They charge what the market will offer them.
No problem with unions as such unless they start getting the law on their side. The moment that happens it’s another ball game.
——————-
Homer don’t be silly. common law contracts under Labotr’s proposal will mostly be tied to awards etc. We’ve been through this before and it seems you really don’t understand it.
But in any event Labor should be allowed to do whatever they want with industrial law. In fact I will support them on anything they present as they campaigned on it. We’ll just see what the independent RBA has to say about that. LOL.
It’s going top be very amusing to watch. Get the popcorn out, put up your feet and relax.
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Think about that next time you doctor or dentist charges you any amount they feel like.
Thanks for making my argument that wages etc. ought to be market determined. I’m sure Homer will explain it to you.
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I’m not sure why you are calling me a lefty JC. Also, I think you are under the false impression that many essential services are driven by market realities that would not cause wages inflation. If there are not enough dentists because we don’t train enough, for example,(and thats only an example — there are a myriad of others I could think of), I think you’ll find they can essentially charge anything they want (would you pay 10 times the amount you do now to fix your teeth if you had too — I certainly would). My point is just that these guys are the ones likely to lead to wages inflation, that they are becoming far larger as a group because of the shittier training system, and we only need relatively minor increases to have a wages blowout (I’m sure 10% is just fine). In my books, some of the union dominated professions (like teachers and nurses), have been far worse off than others that are not (with obvious consequences). This is why I think people who say “its the unions fault” like you are far off the mark on the current reality, which is that the inflation is going to come from groups where the training system has broken down.
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JC,
common law contracts are not tied to awards.
Have a talk to Terje. His company uses them.
You are confused yet again.
Dentists , Surgeons and the like ensure that the market is not competitive.
look at all thew hoopla involved in becoming a surgeon. It is entirely restrictive.
Funny how freeing up the labourmarket touchedmainly the blue collar boyos.
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Homer – Common law contracts are not ‘tied’ to awards, but where one applies they do not over-ride it. That is the key difference between an AWA and a common law contract; they are both individual agreements but AWAs over-ride the award (though where the fairness test applies it is only power to vary terms, not to reduce total benefits).
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Yes Andrew I know that but also being directly tied to the profitablity of the entreprise, usually small, means awards are no longer thought of or needed.
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