Australia’s real wages slump one of the worst in developed world

Working Australians are enduring one of the steepest falls in real wages in the developed world, with new research revealing households are struggling under “persistent pressures” that are likely to continue well into next year and beyond.

As one of the nation’s top economic forecasters predicted the domestic economy is facing its longest stretch of sub-par growth since the early 1990s recession, the OECD’s annual look at the global jobs market noted that Australians’ real wages had fallen by 5 per cent since early 2021.

Over the past five years, the average dwelling price has climbed by 45 per cent, or almost $333,000. That includes increases of 32 per cent in NSW, 14 per cent in Victoria, 89 per cent in Queensland and 90 per cent in Western Australia.

Of the 37 rich nations tracked by the organisation, only New Zealanders have suffered a steeper fall in their after-inflation wages than Australians over the same period. By contrast, British real wages have increased by almost 8 per cent.

In the year to March, wages grew by 3.3 per cent. But over the same period, inflation lifted by 4.6 per cent.

The OECD said while Australians’ real wages had contracted marginally over the past year, the more “concerning” problem was the sharp fall since 2021, which was among the world’s “steepest declines”.

“This sustained erosion of purchasing power points to persistent pressures on household incomes, even as the labour market has remained broadly solid,” it said.

According to the OECD, Australia was one of 11 developed nations where the real minimum wage had fallen over the past year, which was “further weighing on the incomes of the lowest-paid workers”.

Australia’s minimum wage was increased last week by 4.75 per cent, delivering an above-inflation wage increase to 3 million people on award wages. The start of the new financial year also marked the beginning of a modest tax cut to all workers worth up to $5 a week.

The federal budget forecast inflation to easily outpace wages through the just completed financial year before recovering in 2026-27 as price growth eased.

But Deloitte Access Economics on Tuesday said it believes Australians should prepare for more real wage pain this financial year.

Deloitte expects the economy to slow sharply through coming months, with GDP growth this financial year and next to slip below 2 per cent. It would be the first back-to-back years of sub-2 per cent growth since the end of the 1990-91 recession.

The slower growth will be accompanied by ongoing inflation, which Deloitte believes will hang around 4 per cent through 2026-27 before falling to 2.6 per cent in 2027-28.

That higher inflation means real wages are expected to go backwards by another 0.7 per cent this year. Unemployment is expected to lift from around its current level of 4.4 per cent to 4.9 per cent in 2026-27 and then 5 per cent the following year.

Deloitte partner Stephen Smith said the war against Iran and this year’s increase in inflation had exposed economic vulnerabilities that had developed over recent years.

“For too long, strong population growth has masked a weak underlying productivity performance and lifted aggregate growth while doing less to improve living standards,” he said.

“Years of insufficient investment in housing, infrastructure, energy and the economy’s productive capacity have left the supply side of the economy struggling to keep pace with demand.”

Deloitte is expecting the Reserve Bank to lift official interest rates once more this year, most likely at its August meeting. That would take the cash rate to 4.6 per cent.

But financial markets believe it is much more likely the Reserve’s next move will be a cut. A rate cut by September next year is now fully priced in with a 50 per cent chance of a second cut by Christmas.

Smith said cost-of-living pressures remained the biggest weight on the economy.

He said mortgage repayments, which had climbed by $350 a month on the average home loan due to the Reserve Bank’s three interest rate hikes this year, and higher prices for rents, insurance, groceries and electricity, were all buffeting households.

“Households remain under pressure. Tax relief, nominal wage gains and higher minimum and award wages from July will provide some support,” he said.

“Yet those offsets are being tested by renewed inflation pressure, higher borrowing costs, volatile fuel and transport costs and weak confidence.”

Treasurer Jim Chalmers said nominal wages had been growing at more than 3 per cent for 15 consecutive quarters, the longest streak in at least 15 years. But he conceded Australians were feeling the cost-of-living pain.

“When we came to office real wages were going badly backwards, falling 3.5 per cent in the quarter we were elected and fell for the five quarters leading up to when we elected,” he said.

“The overwhelming story of this government has been one of real wages growth, with annual real wages having grown for 8 of the last 10 quarters.”

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