Can You Expect a Payrise in 2019? Wages Growth in Australia

As the 2019 working year hits its stride, ApplyDirect looks at the state of wages growth in Australia and whether we can expect a payrise this year.

The summer holidays are over, Australia Day has come and gone and the tennis finals are complete. Yes, the 2019 working year is now in full swing and many employers will be turning their minds to the year ahead, with thoughts of making a possible career change and one way or another receiving a much needed payrise. However, despite inflation remaining “weaker than the RBA would hope for” at 1.7% in 2018, the weakest in two years, the cost of some of life’s basic essentials – like housing, petrol, utilities and private health insurance – continues to grow in Australia’s capital cities, especially Sydney and Melbourne. In times past, this wouldn’t be such a big deal as our pay packets rose at a faster rate, yet since 2013 wages growth has remained unusually low across the country – barely nudging 2% in the year to 2017 and matching the official inflation rate. In essence, the living standards of Aussie workers are stagnant at best, so the team at ApplyDirect investigates the important question, can we expect to see a payrise in 2018?

The Current State of Play

December 2018

Unemployment Rate

5.0%

Unemployed Persons (15-65)

12,716

Inflation Rate

1.8%

Wages Growth

2.3%

Cost of Living Remains Higher Than Workers Paycheques

According to the ABS’s (Australian Bureau of Statistics) latest official measure of average pay rises across the nation’s labour market, the typical pay packet of full-time employed Australians rose just 0.5% in the September quarter of 2018, or an annualised rate of 2.2%. These figures compare unfavourably to not only the boom years of the 2000’s prior to the 2009-09 global financial crisis when rises of 1% per quarter were not uncommon, but also historic growth rates that stretch back to the 1960’s. Most crucially, the annualised rate of 2.2% pay rises matches the official inflation rate which also sits around 2% - with the intersection between these two figures being the cause of much dismay amongst the general public.

Relief as Interest Rates Likely to Remain Subdued

Whilst cost of living pressures continue to squeeze many Aussie workers in the form of rising utility bills (especially gas and electricity), fuel prices and accommodation costs (house prices and rent), for those Australians lucky enough to get their foot onto the property ladder and are currently paying off a home loan, there is a silver of relief in the form of static interest rates. Given low inflationary pressures, many economists expect the RBA (Reserve Bank of Australia) to keep the official cash rate upon which the banks base their mortgage rates at its current historically low level of 1.5% for the time being.

Further Relief: Personal Income Tax Cuts for Low and Middle-Income Earners

Another silver lining for workers squeezed by the rising cost of living and stagnant pay packets are the introduction of tax relief efforts for low and middle-income earners (earning under the 37% bracket (incomes up to $87,000 per annum) in the Federal Budget 18/19. Represent a welcome boost to the after-tax incomes for the majority of Australians and hopefully lead to higher growth driving consumer consumption. This first stage in the government’s income tax reform legislation is to be followed with replaces the temporary Low and Middle Income Tax Offset and the existing LITO with a new Low Income Tax Offset in 2022 and changes the thresholds at which the marginal tax rates apply in 2024.

How Australia Compares tot he Rest of the Developed World

It’s important to keep in mind that Australia isn’t the only developed nation facing low wage growth, with our OECD peers including the United Kingdom and United States also dealing with the same problem, which they’ve faced over a much longer timeframe and with more political turmoil involved. One possible reason economists provide for this unusual combination of low unemployment (in most OECD countries) combined with stubbornly low wage growth may be due to the structural changes being wrought by automation and digitisation of tasks once completed by skilled workers. Another reason is high population growth - which is particularly relevant to Australia – having a dilution effect on pay. Whatever the true reasons, we’re all hoping to get a decent payrise in the year ahead!

OECD Wages Growth Rates 2017 (Annual)

Australia

2.0%

Canada

2.2%

France

2.4%

Germany

2.4%

New Zealand

1.7%

United Kingdom

2.2%

United States

2.4%

Leave your comment

You need to to leave comment