The federal budget predicts wage increases are going to make a spectacular comeback

Image: AMC

A core theme of Treasurer Scott Morrison’s budget is that there are better days ahead.

There sure are, at least according to these projections from the budget papers which see wages growth climbing back to almost 4% by 2020-21.

For years now, official forecasts of wages growth rebounding have failed to materialise, as this recent chart from the RBA demonstrates. The coloured lines are the forecasts, while the black line is reality.

Wrong — over and over and over again.

Slowing wages growth — and the persistent failure of pay to live up to expectations — is one of the crushing realities that Australian households are confronting.

At the budget level, the failure of wages to keep pace with expectations has been a drag on income tax receipts.

Without strong job creation there will remain slack in the labour market, and while that is the case, wages growth will remain soft.

So keep an eye on the employment data – because job creation and a falling unemployment rate are the only things that will get wages growth anywhere near 3.75% in a few year’s time.

And with income taxes the biggest source of revenue, that’s a vital component of the path to budget balance.

Can’t wait for those pay rises.

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